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Financial Development, Financial Fragility, and Growth

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  • Norman Loayza
  • Romain Ranciere

Abstract

This paper studies the apparent contradictions between two strands of the literature on the effects of financial intermediation on economic activity. On the one hand, the empirical growth literature finds a positive effect of financial depth as measured by, for instance, private domestic credit and liquid liabilities. On the other hand, the banking and currency crisis literature finds that monetary aggregates, such as domestic credit, are among the best predictors of crises and their related economic downturns. This paper accounts for these contrasting effects based on the distinction between the short- and long-run effects of financial intermediation.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/170.

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Length: 32
Date of creation: 01 Aug 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/170

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Keywords: Banking crisis; Economic growth; financial volatility; financial intermediation; financial liberalization; banking crises; financial fragility; systemic banking crises; financial crises; liquid liabilities; crisis countries; bond; financial crisis; currency crisis; systemic banking crisis; international financial statistics; borderline financial crises; financial deepening; financial markets; bank runs; financial crisis literature; financial economics; risky banks; financial liberalization through time; financial instability; financial repression; recessions; financial reputation; liquidity crises; financial depth on investment; cross-country experience; financial market; market banking crises; financial-market imperfections; high-crisis countries; banking supervision;

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References

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