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Capital Market and Business Cycle Volatility

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Author Info
Tharavanij, Piyapas

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Abstract

This paper investigates cross-country evidence on how capital markets affect business cycle volatilities. In contrast to the large and growing literature of finance and growth, empirical work on the relationship between finance, particularly capital markets, and volatility has been relatively scarce, though theoretically, more developed capital markets should lead to lower macroeconomic volatilities. Results are generated using panel estimation technique with data from 44 countries covering the years 1975 through 2004. The major finding is that countries with more developed capital markets have smoother economic fluctuations. The results hold under various estimation methods and after controlling for other relevant variables, country specific effects, and plausible endogeneity problems.

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File URL: http://mpra.ub.uni-muenchen.de/5188/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 4952.

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Date of creation: 09 Sep 2007
Date of revision: 07 Oct 2007
Handle: RePEc:pra:mprapa:4952

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Related research
Keywords: business cycle capital market financial development financial structure panel data market-based bank-based

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Find related papers by JEL classification:
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
G00 - Financial Economics - - General - - - General
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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