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Is There an Optimum Level of Financial Activity?

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Author Info
Michael Graff () (KOF Swiss Economic Institute, ETH Zurich)

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Abstract

This paper addresses the notion of an "optimum level of financial activity" that is contingent on a country's general level of development. Referring to threshold regressions and a bootstrap test for structural shift of the finance regressor in a growth equation, it is shown that countries gain less from a given level of financial activity, if the latter fails to keep up with or exceeds what would follow from a balanced expansion path. The paper contributes to the literature on the finance-growth nexus in providing empirical support for the notion of "balanced" financial development with a development specific optimum level of financial activity.

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Publisher Info
Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 05-106.

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Length: 29 pages
Date of creation: Aug 2005
Date of revision:
Handle: RePEc:kof:wpskof:05-106

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Related research
Keywords: Optimum financial activity; Bayesian statistics; bootstrapping;

Find related papers by JEL classification:
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
P17 - Economic Systems - - Capitalist Systems - - - Performance and Prospects
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis

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