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Financial Development and Volatility of Growth: Time Series Evidence for Mexico and USA

Listed author(s):
  • Rodolfo Cermeño
  • María Roa García
  • Claudio González-Vega

This paper explores the influences of financial deepening on growth and its volatility. Following a review of the theoretical literature that has attempted to explain these relationships, the paper presents time series evidence –using GARCH models– for the cases of Mexico and the US. The results suggest that, in the case of the US, financial deepening has been related to the rate of real output growth but that finance has not shown a significant relationship with output volatility. In the Mexican case, financial deepening has reduced the volatility of growth which, in turn, has induced higher output growth rates. Further, higher US growth rates have resulted in higher and less volatile growth rates in the Mexican economy

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Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c017_035.

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Length: 48 pages
Date of creation: Sep 2012
Handle: RePEc:deg:conpap:c017_035
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