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Financial development and macroeconomic performance: a cointegration approach

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  • Cândida Ferreira

Abstract

The paper tests the existence of long-term relations, measured through cointegration,between all the IMF financial development indices and some macroeconomic performance indicators applying panel cointegration tests in a panel with 46 countries, and in a panel including only the sub-sample of the 28 EU countriesover the interval 1990-2017. Overall, there are no significant differences between the results obtained for whole sample and the panel including only the EU countries. The results obtained clearly point to the existence of cointegration between the financial development indices and the real GrossDomestic Product, aswell aswith the inflation, the unemployment rate, and very particularly, with the current account, and with the net international investment position. The results also show there are no significant differences between the results obtained for the financial institutions and for the financial markets. Moreover, the results related to the specific aspects addressed by the IMF indices very well demonstrate that much ore mportant han he imple access to or the depth of the financial institutions nd markets is the efficiency of these institutions and markets.

Suggested Citation

  • Cândida Ferreira, 2020. "Financial development and macroeconomic performance: a cointegration approach," Working Papers REM 2020/0155, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp01552020
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    More about this item

    Keywords

    Financial development; IMF Financial development indices; macroeconomic performance; cointegration; panel cointegration tests.;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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