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Growth, Savings, Financial Markets and Markov Switching Regimes

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  • Jacobson, Tor

    ()
    (Research Department, Central Bank of Sweden)

  • Lindh, Thomas

    (The Swedish Council for Research in the Humanities and Social Sciences (HSFR))

  • Warne, Anders

    ()
    (Research Department, Central Bank of Sweden)

Abstract

We report evidence that the relation between the financial-sector share, private saving, and growth in the United States in 1948-96 is characterized by several regime shifts. The finding is based on vector autoregressions on quarterly data that allow for Markov switching regimes. The evidence may be interpreted as support for a hypothesis that the relation between financial development and growth evolves in a stepwise fashion. Theoretical models in which structural financial developments entail fixed costs imply such stepwise patterns. The estimated variable relations are roughly consistent with the patterns to be expected from such models, although our data do not admit definite conclusions. The timing of the shifts coincides with changes in regulation and in the financial-market structure.

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Bibliographic Info

Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 69.

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Length: 27 pages
Date of creation: 01 Sep 1998
Date of revision:
Publication status: Published in Studies in Nonlinear Dynamics and Econometrics, 2002, pages 241-259.
Handle: RePEc:hhs:rbnkwp:0069

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Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Phone: 08 - 787 00 00
Fax: 08-21 05 31
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Web page: http://www.riksbank.com/
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Keywords: Financial development; Growth; Markov switching; Savings; Vector autoregression;

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  1. Acemoglu, Daron & Zilibotti, Fabrizio, 1996. "Was Prometheus Unbound by Chance? Risk, Diversification and Growth," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1426, C.E.P.R. Discussion Papers.
  2. Saul B. Klaman, 1961. "The Postwar Residential Mortgage Market," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number klam61-1.
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  5. Devereux, Michael B & Smith, Gregor W, 1994. "International Risk Sharing and Economic Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(3), pages 535-50, August.
  6. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  7. Jung, Woo S, 1986. "Financial Development and Economic Growth: International Evidence," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 34(2), pages 333-46, January.
  8. Hansen, Bruce E, 1992. "The Likelihood Ratio Test under Nonstandard Conditions: Testing the Markov Switching Model of GNP," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 7(S), pages S61-82, Suppl. De.
  9. Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series 609, The World Bank.
  10. Greenwood, Jeremy & Jovanovic, Boyan, 1988. "Financial Development, Growth, And The Distribution Of Income," Working Papers, C.V. Starr Center for Applied Economics, New York University 88-12, C.V. Starr Center for Applied Economics, New York University.
  11. Hamilton, James D., 1996. "Specification testing in Markov-switching time-series models," Journal of Econometrics, Elsevier, Elsevier, vol. 70(1), pages 127-157, January.
  12. Pagano, Marco, 1993. "Financial markets and growth: An overview," European Economic Review, Elsevier, Elsevier, vol. 37(2-3), pages 613-622, April.
  13. Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, Elsevier, vol. 45(1-2), pages 39-70.
  14. Bencivenga, V.R. & Smith, B.D., 1988. "Financial Intermediation And Endogenous Growth," RCER Working Papers, University of Rochester - Center for Economic Research (RCER) 124, University of Rochester - Center for Economic Research (RCER).
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  16. Saint-Paul, G., 1990. "Technological Choice, Financial Markets and Economic Development," DELTA Working Papers, DELTA (Ecole normale supérieure) 90-30, DELTA (Ecole normale supérieure).
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Cited by:
  1. Chen, Shyh-Wei & Shen, Chung-Hua, 2007. "A sneeze in the U.S., a cough in Japan, but pneumonia in Taiwan? An application of the Markov-Switching vector autoregressive model," Economic Modelling, Elsevier, Elsevier, vol. 24(1), pages 1-14, January.
  2. Thomas Lindh, 2000. "Short-Run Costs of Financial Market Development in Industrialized Economies," Eastern Economic Journal, Eastern Economic Association, Eastern Economic Association, vol. 26(2), pages 221-239, Spring.
  3. Balcilar, Mehmet & Ozdemir, Zeynel Abidin, 2013. "The causal nexus between oil prices and equity market in the U.S.: A regime switching model," Energy Economics, Elsevier, Elsevier, vol. 39(C), pages 271-282.
  4. Andersson, Björn, 1999. "On the Causality Between Saving and Growth: Long- and Short-Run Dynamics and Country Heterogeneity," Working Paper Series, Uppsala University, Department of Economics 1999:18, Uppsala University, Department of Economics.

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