nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2007‒04‒09
three papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. The Interaction of Inflation and Financial Development with Endogenous Growth By Max Gillman; Mark N Harris; Michal Kejak
  2. Monetary Stabilisation Policy and Long-run Growth By Galindev Ragchaasuren
  3. Post-conflict aid, real exchange rate adjustment, and catch-up growth By Schmidt-Hebbel, Klaus; Kaltani, Linda; Elbadawi, Ibrahim A.

  1. By: Max Gillman (Cardiff Business School); Mark N Harris (Monash University); Michal Kejak (CERGE-EI Prague)
    Abstract: A cash-in-advance, endogenous growth, economy defines financial development within a banking sector production function as the degree of scale economies for normalized capital and labor. Less financially developed economies have smaller such returns to scale, and can be credit constrained endogenously by a steeply sloping marginal cost of credit supply. The degree of scale economies uniquely determines the marginal cost curvature and the unit cost of financial intermedition, which is expressed in terms of an interest differential. The interest differential result allows for calibration of the finance production function using industry data. A hypothesis of how financial development interacts with inflation and growth is tested, using fixed effects panel estimation with endogeneity tests, dynamic panel estimation, and an extended use of multiple inflation rate splines in estimation of the growth rate
    Keywords: Inflation, financial development, growth, panel data
    JEL: C23 E44 O16
    Date: 2007–02–02
  2. By: Galindev Ragchaasuren (Department of Economics University of Essex)
    Abstract: This paper presents a stochastic monetary growth model with nominal rigidities and active monetary policy in which technological change contains both deliberate (internal) and serendipitous (external) learning mechanisms. The model is used to describe how the implications of monetary stabilization policy for the long-run economic performance could change due to the ambiguity on the relationship between secular growth and cyclical volatility
    Keywords: growth, cyclies, money, stabilisation policy
    JEL: E32 E52 O42
    Date: 2007–02–02
  3. By: Schmidt-Hebbel, Klaus; Kaltani, Linda; Elbadawi, Ibrahim A.
    Abstract: Post-conflict countries receive substantial aid f lows after the start of peace. While post-conflict countries ' capacity to absorb aid (that is, the quality of their policies and institutions) is built up only gradually after the onset of peace, the evidence suggests that aid tends to peak immediately after peace is attained and decline thereafter. Aid composition broadly reflects post-conflict priorities, with large parts of aid financing social expenditure and infrastructure investment. Aid has significant short-term effects on the real exchange rate (RER), as inferred from the behavior of RER in the world. While moderate RER overvaluation is observed in post-conflicts, it cannot be traced down to the aid flows. The empirical evidence on world growth reveals new findings about the pattern of catch-up growth during post-conflicts and the role of key growth determinants on post-conflict growth. Aid is an important determinant of growth, both generally and more strongly during post-conflict periods. Because RER misalignment reduces growth, RER overvaluation during post-conflicts reduces catch-up growth. Aid and RER overvaluation combined also lower growth. But the negative growth effect of RER overvaluation declines with financial development.
    Keywords: Social Conflict and Violence,Economic Theory & Research,Development Economics & Aid Effectiveness,Post Conflict Reintegration,Pro-Poor Growth and Inequality
    Date: 2007–04–01

This nep-fdg issue is ©2007 by Iulia Igescu. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.