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Financial stability and economic performance

Author

Listed:
  • Jérôme Creel

    (Ofce sciences-po,Escp Europe)

  • Paul Hubert

    (Ofce sciences-po)

  • Fabien Labondance

    (Ofce sciences-po)

Abstract

This paper aims at establishing the link between economic performance, financial depth and financial stability in the European Union from 1998 to 2011. We use the standard framework both in terms of variables and econometric method of Beck and Levine (2004) to estimate these relationships. Our results suggest that the traditional result that financial depth positively influences economic performance (or components of aggregate dynamics like consumption, investment or disposable income) is not confirmed for European countries. Furthermore, we use different measures of financial instability (institutional index, microeconomic indicators, and our own statistical index derived from a Principal Component Analysis) and find that financial instability has a negative effect on economic growth.

Suggested Citation

  • Jérôme Creel & Paul Hubert & Fabien Labondance, 2013. "Financial stability and economic performance," Documents de Travail de l'OFCE 2013-24, Observatoire Francais des Conjonctures Economiques (OFCE).
    • Handle: RePEc:fce:doctra:1324
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    More about this item

    Keywords

    Financial depth; Aggregate dynamics; Financial stability; Banks; Non-performing loans; CISS; Z-score; Principal component analysis;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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