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Financial development and the transmission of monetary shocks

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  • Lensink, Robert
  • Scholtens, Bert

    (Groningen University)

Abstract

We investigate whether the financial system dampens or exacerbates monetary shocks of inflation uncertainty to the economy. Our GMM-estimates for 88 countries over a period of 25 years show that inflation uncertainty has a positive and significant impact on the volatility of economic growth. More importantly, we find that financial development dampens the negative effects of inflation uncertainty on the volatility of economic growth. This confirms the importance of a well-developed financial sector.

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File URL: http://irs.ub.rug.nl/ppn/264576586
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Bibliographic Info

Paper provided by University of Groningen, Research Institute SOM (Systems, Organisations and Management) in its series Research Report with number 04E05.

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Date of creation: 2004
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Handle: RePEc:dgr:rugsom:04e05

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  1. Beck, Thorstein & Lundberg, Mattias & Majnoni, Giovanni, 2001. "Financial intermediary development and growth volatility : do intermediaries dampen or magnify shocks?," Policy Research Working Paper Series 2707, The World Bank.
  2. Vivek Ghosal & Prakash Loungani, 1995. "Product market competition and the impact of price uncertainty on investment: some evidence from U.S. manufacturing industries," International Finance Discussion Papers 517, Board of Governors of the Federal Reserve System (U.S.).
  3. Cevdet Denizer & Murat Iyigun & Ann Owen, 2000. "Finance and Macroeconomic Volatility," Macroeconomics 0004015, EconWPA.
  4. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
  5. Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
  6. Frank Windmeijer, 2000. "A finite sample correction for the variance of linear two-step GMM estimators," IFS Working Papers W00/19, Institute for Fiscal Studies.
  7. Vivek Ghosal & Prakash Loungani, 2000. "The Differential Impact of Uncertainty on Investment in Small and Large Businesses," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 338-343, May.
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Cited by:
  1. Olaf Posch, 2009. "Explaining Output Volatility: The Case of Taxation," CESifo Working Paper Series 2751, CESifo Group Munich.

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