Cyclical macroeconomic policy, financial regulation and economic growth
AbstractThis paper investigates the effect of cyclical macroeconomic policy and financial sector characteristics on growth. Using cross-country, cross-industry OECD data, it yields two main findings. First, countercyclical fiscal and monetary policies foster growth disproportionately in more credit/liquidity-constrained industries. Second, while higher bank capital ratios may contribute to reducing the benefit of a countercyclical monetary policy, countercyclical credit enhances growth disproportionately in more credit/liquidity-constrained industries and this complements the growth effects of countercyclical monetary policy. Raising regulatory requirements for bank capital can therefore help achieve financial stability and preserve economic growth if complemented with more countercyclical macroeconomic and regulatory policy.
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Bibliographic InfoPaper provided by Bank for International Settlements in its series BIS Working Papers with number 434.
Length: 42 pages
Date of creation: Dec 2013
Date of revision:
Growth; financial constraints; fiscal policy; monetary policy; financial regulation;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-29 (All new papers)
- NEP-CBA-2013-12-29 (Central Banking)
- NEP-GRO-2013-12-29 (Economic Growth)
- NEP-MAC-2013-12-29 (Macroeconomics)
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