nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2016‒09‒18
four papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Stock market and economic growth in Eastern Europ By María A. Prats; Beatriz Sandoval
  2. Monetary policy transmission in an open economy: new data and evidence from the United Kingdom By Cesa-Bianchi, Ambrogio; Thwaites, Gregory; Vicondoa, Alejandro
  3. Real Exchange Rates and Growth By Duygu Yolcu Karadam; Erdal Özmen
  4. Public Expenditure and Growth: The Indian Case By Antra Bhatt; Claudio Sardoni

  1. By: María A. Prats (Universidad de Murcia); Beatriz Sandoval (Universidad de Murcia)
    Abstract: A developed financial system is essential in a market economy. Similarly, economic growth is very important for institutions and economic policy. This paper studies the importance of the development of financial markets in general, and stock market in particular, from the review of existing literature in the area of the relationship between financial development and economic growth, and especially, the link between stock market and economic growth. Through an empirical analysis for six countries in Eastern Europe (Bulgaria, Slovakia, Hungary, Poland, Czech Republic and Romania), it is tried to show the link between the development of stock market and economic growth in these countries from 1995 to 2012 in order to deep in their transition processes, from communist to market economies, that began with the fall of the Berlin Wall in 1989. The results show evidence of Granger causality with economic growth variables and financial market variables.
    Keywords: Present value model; economic growth, stock market, financial markets, financial developmen
    JEL: F43 O16 G2
    Date: 2016–09
  2. By: Cesa-Bianchi, Ambrogio (Bank of England); Thwaites, Gregory (Bank of England); Vicondoa, Alejandro (European University Institute)
    Abstract: This paper constructs a new series of monetary policy surprises for the United Kingdom and estimates their effects on macroeconomic and financial variables, employing a high-frequency identification procedure. First, using local projections methods, we find that monetary policy has persistent effects on real interest rates and breakeven inflation. Second, employing our series of surprises as an instrument in a SVAR, we show that monetary policy affects economic activity, prices, the exchange rate, exports and imports. Finally, we implement a test of overidentifying restrictions, which exploits the availability of the narrative series of monetary policy shocks computed by Cloyne and Huertgen (2014), and find no evidence that either set of shocks contains any endogenous response to macroeconomic variables.
    Keywords: Monetary policy transmission; external instrument; high-frequency identification; structural VAR; local projections
    JEL: E31 E32 E43 E44 E52 E58
    Date: 2016–09–02
  3. By: Duygu Yolcu Karadam (Department of Economics, Pamukkale University); Erdal Özmen (Department of Economics, METU)
    Abstract: This paper empirically investigates the impact of real exchange rates (RER) on growth of a large number of advanced (AE) and developing economies (DE) by employing the recent non-stationary panel data estimation procedures to estimate conventional growth models augmented with global financial and monetary conditions variables. Our results suggest that, the expansionary depreciation findings for DE are often based on a misinterpretation of an error correction mechanism coefficient. We find that external variables representing global financial and monetary conditions are strongly significant in explaining growth in DE along with the conventional variables including trade openness, human capital, domestic savings. Our data support the view that RER depreciations are contractionary for DE with high external debt and expansionary for AE. Higher trade openness enhances the contractionary impact of RER depreciations in both AE and DE. These results are found to be robust for different RER and per capita real income measures.
    Keywords: Balance Sheets, Developing economies, Exchange rates, Growth
    JEL: F30 F41 F60 F65 O11
    Date: 2016–09
  4. By: Antra Bhatt (University of Chicago - Harris School of Public Policy.); Claudio Sardoni (Department of Social Sciences and Economics, Sapienza University of Rome)
    Abstract: The paper deals with the analysis of the relationship between public spending and growth as well as the dynamics of the ratio public debt/GDP. We show that a composition of public spending that favours productive expenditures, i.e. those with a direct positive effect on the economy's rate of growth, can determine a situation in which the ratio of the public debt to GDP is stable, even though the government runs primary de cits. We test our theoretical results by considering the Indian case that, for a number of reasons, appears to be consistent with our theoretical hypotheses and assumptions. The results of the empirical analysis substantially support the idea that the dynamics of the economy as well as of the ratio public debt/GDP are crucially contingent on having a public sector that favours productive expenditures.
    Keywords: Public expenditure, Growth, Public debt.
    JEL: H30 H54 H60
    Date: 2016–09

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