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Financial stability and economic performance

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Author Info

  • Jérôme Creel

    ()
    (Ofce sciences-po,Escp Europe)

  • Paul Hubert

    ()
    (Ofce sciences-po)

  • Fabien Labondance

    ()
    (Ofce sciences-po)

Abstract

This paper aims at establishing the link between economic performance, financial depth and financial stability in the European Union from 1998 to 2011. We use the standard framework both in terms of variables and econometric method of Beck and Levine (2004) to estimate these relationships. Our results suggest that the traditional result that financial depth positively influences economic performance (or components of aggregate dynamics like consumption, investment or disposable income) is not confirmed for European countries. Furthermore, we use different measures of financial instability (institutional index, microeconomic indicators, and our own statistical index derived from a Principal Component Analysis) and find that financial instability has a negative effect on economic growth.

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Bibliographic Info

Paper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2013-24.

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Date of creation: Dec 2013
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Handle: RePEc:fce:doctra:1324

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Keywords: Financial depth; Aggregate dynamics; Financial stability; Banks; Non-performing loans; CISS; Z-score; Principal component analysis;

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References

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. L’instabilité financière nuit-elle réellement aux performances économiques ?
    by Laurence Duboys Fresney in OFCE le blog on 2014-01-22 08:34:50
  2. Does financial instability really undermine economic performance?
    by Laurence Duboys Fresney in OFCE le blog on 2014-01-23 10:10:59
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Cited by:
  1. Christophe Blot & Jérôme Creel & Paul Hubert & Fabien Labondance & Francesco Saraceno, 2014. "Assessing the link between price and financial stability," Documents de Travail de l'OFCE 2014-02, Observatoire Francais des Conjonctures Economiques (OFCE).
  2. repec:spo:wpecon:info:hdl:2441/f6h8764enu2lskk9p4oqi4ibn is not listed on IDEAS

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