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Financial intermediation, variability and the development process

  • Luis Carranza
  • Jose E. Galdón-Sánchez

In this paper we have built a model of financial intermediation that explains the GDP variability pattern of an economy during the development process. In our model, per capita is more volatile in the middle-income economies than in both low and high-income economies. We show that, if the model economy is in the early or in the mature stages of development there is a unique equilibrium. However, in the middle stages of development multiple equilibria arise. Moreover, we find that in economies with imperfect credit markets, per capita output volatility tends to be higher than in economies with perfect or non-existent credit markets.

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File URL: http://eprints.lse.ac.uk/6660/
File Function: Open access version.
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 6660.

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Length: 40 pages
Date of creation: Mar 2000
Date of revision:
Handle: RePEc:ehl:lserod:6660
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