Operational aspect of the policy coordination for financial stability: role of Jeffreys–Lindley’s paradox in operations research

This study analyses the implications of Jeffery – Lindley’s paradox and Global Financial Crisis (GFC) for the operational aspect of macroeconomic policy coordination for financial stability. Using a Bayesian Vector Auto-regressive model and data from Jan 1985 to June 2016, our key findings suggest t...

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Bibliographic Details
Published in:Annals of operations research 2021-11, Vol.306 (1-2), p.57-81
Main Authors: Nasir, Muhammad Ali, Soliman, Alaa M., Shahbaz, Muhammad
Format: Article
Language:English
Subjects:
Analysis
Autoregressive models
Bayesian analysis
Bayesian statistical decision theory
Business and Management
Combinatorics
Coordination
Economic policy
Financial markets
Industrial research
International finance
Macroeconomics
Management science
Operations research
Operations Research/Decision Theory
Paradoxes
S.I.: Regression Methods based on OR techniques
Stability
Theory of Computation
United Kingdom
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Summary:This study analyses the implications of Jeffery – Lindley’s paradox and Global Financial Crisis (GFC) for the operational aspect of macroeconomic policy coordination for financial stability. Using a Bayesian Vector Auto-regressive model and data from Jan 1985 to June 2016, our key findings suggest that the claim of macroeconomic policy interaction, interdependence and significance of coordinated policy operations for the financial stability holds its ground. The argument in the support for policy coordination for financial stability was found to be robust against the Jeffreys–Lindley’s paradox and in the Post-GFC era. A profound practical, operational and philosophical implication of this study is the positive aspects of Jeffreys–Lindley’s paradox and the possibility of employing the Frequentist and Bayesian estimation techniques as complementing rather competing frameworks.
ISSN:0254-5330
1572-9338
DOI:10.1007/s10479-020-03648-y