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Financial Development, Financial Structure, and Macroeconomic Volatility: Evidence from China

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  • Feng Wei

    () (School of Economics and Business Administration, Chongqing University, Chongqing 400030, China
    These authors contributed equally to this work.)

  • Yu Kong

    () (School of Public Affairs, Chongqing University, Chongqing 400030, China
    These authors contributed equally to this work.)

Abstract

Using annual data from 1997–2014 of 30 provinces, municipalities, and autonomous regions, subdividing trended and cyclical volatility of macroeconomics and inflation, considering different indicators of financial development and financial structure, this paper investigated the impact of financial development and financial structure on macroeconomic volatility. The empirical results found that (1) the trended and cyclical volatility of the previous macroeconomic period had a significantly positive impact on that of the current period, and the impact of trended volatility was greater than that of cyclical volatility; (2) financial development had a significantly negative impact on macroeconomic cyclical volatility through inflation cyclical volatility, but inflation trended volatility would amplify macroeconomic volatility; financial markets have no significant effect on macroeconomic volatility; financial structure measured with the ratio of stock market turnover and the efficiency of the financial development had a significant positive impact on macroeconomic cyclical volatility; and (3) inflation trended volatility had a significantly negative impact on macroeconomic cyclical volatility and trended volatility, while inflation cyclical volatility had a significantly positive impact on macroeconomic cyclical volatility.

Suggested Citation

  • Feng Wei & Yu Kong, 2016. "Financial Development, Financial Structure, and Macroeconomic Volatility: Evidence from China," Sustainability, MDPI, Open Access Journal, vol. 8(11), pages 1-20, November.
  • Handle: RePEc:gam:jsusta:v:8:y:2016:i:11:p:1116-:d:81915
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    References listed on IDEAS

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    More about this item

    Keywords

    financial development; financial structure; macroeconomic trended volatility; macroeconomic cyclical volatility;

    JEL classification:

    • Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics
    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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