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Capital Market, Severity Of Business Cycle, And Probability Of An Economic Downturn

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  • Piyapas Tharavanij

Abstract

This paper investigates the relationships of capital market, severity of economic contraction, and probability of an economic downturn. The finding supports a theoretical prediction that countries with more advanced capital markets would face less severe business cycle output contraction, and a lower chance of an economic downturn. The results hold even after controlling for other relevant variables, country specific effects, and state dependences. However, the marginal effects are small. Results are generated using panel estimation technique with panel data from 44 countries covering the years 1975 through 2004.

Suggested Citation

  • Piyapas Tharavanij, 2007. "Capital Market, Severity Of Business Cycle, And Probability Of An Economic Downturn," Monash Economics Working Papers 32-07, Monash University, Department of Economics.
  • Handle: RePEc:mos:moswps:2007-32
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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2007/3207capitalmarkettharavanij.pdf
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    References listed on IDEAS

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    6. Thomas Dalsgaard & Jørgen Elmeskov & Cyn-Young Park, 2002. "Ongoing changes in the business cycle - evidence and causes," SUERF Studies, SUERF - The European Money and Finance Forum, number 20 edited by Morten Balling.
    7. Levine, Ross, 2002. "Bank-Based or Market-Based Financial Systems: Which Is Better?," Journal of Financial Intermediation, Elsevier, vol. 11(4), pages 398-428, October.
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    16. Tharavanij, Piyapas, 2007. "Capital Market and Business Cycle Volatility," MPRA Paper 4952, University Library of Munich, Germany.
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    Cited by:

    1. Abu Nurudeen, 2009. "Does Stock Market Development Raise Economic Growth? Evidence from Nigeria," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 1(1), pages 015-026, December.

    More about this item

    Keywords

    business cycle; capital market; financial development; financial structure; panel data; market-based; bank-based;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G00 - Financial Economics - - General - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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