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Finance and Growth Cycles

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  • Kunieda, Takuma

Abstract

This research examines the effect of financial development on volatility in economic growth. It demonstrates theoretically that financial development has a hump-shaped effect on volatility in economic growth. In early stages of the development of a financial sector, growth rates evolve monotonically. At the intermediate level of financial development, as the degree of credit market imperfections diminishes and as asymmetric information between borrowers and lenders is less pronounced, an economy exhibits endogenous growth cycles. However, as the financial sector matures, the volatility in the growth process dissipates and the growth rates evolve once again monotonically.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11340.

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Date of creation: 12 Jul 2008
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Handle: RePEc:pra:mprapa:11340

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Keywords: Endogenous Growth Cycles; Financial Deepening; Credit market imperfections; Heterogeneous agents;

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