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A Traffic-Jam Theory of Growth

Author

Listed:
  • Finocchiaro, Daria

    (Research Department, Central Bank of Sweden)

  • Weil, Philippe

    (Université libre de Bruxelles and CEPR)

Abstract

We investigate the growth-finance nexus in an endogenous growth model with search frictions and congestion effects in credit and innovation markets. The interplay between these two frictions generates a nonlinear relationship between finance and growth. Financial development eases the financing of innovation but can exacerbate bottlenecks in R&D. In a calibration close to the U.S. economy, finance has a negative impact on growth. This effect is quantitatively small– consistent with the observation that, in the last century, most developed economies have experienced an expansion of the financial sector and almost constant growth rates of GDP.

Suggested Citation

  • Finocchiaro, Daria & Weil, Philippe, 2024. "A Traffic-Jam Theory of Growth," Working Paper Series 442, Sveriges Riksbank (Central Bank of Sweden).
    • Handle: RePEc:hhs:rbnkwp:0442
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    References listed on IDEAS

    as
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    Keywords

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    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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