nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2017‒01‒29
three papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Finance and Growth: From the Business Cycle to the Long Run By Thomas Grjebine; Fabien Tripier
  2. Lower Oil Prices and the U.S. Economy: Is This Time Different? By Baumeister, Christiane; Kilian, Lutz
  3. Sovereign Debt Effects and Composition: Evidence from Time-Varying Estimates By António Afonso; João Tovar Jalles

  1. By: Thomas Grjebine; Fabien Tripier
    Abstract: This paper proposes a new methodology to assess the long-run relationship between economic and financial growth. By linking long-run growth to the properties of business cycles, this methodology offers a better understanding of the channels through which finance can impact long-term growth. We first define the direct elasticity between financial and economic growth to measure the contemporaneous effect of financial growth. If financial booms make recessions more severe, losses of growth during recessions are low when compared with growth supplements during expansions. Beyond this contemporaneous effect of financial booms, we identify a persistent effect of financial growth detrimental to subsequent cycles, which is referred as a hysteresis phenomenon. Then, financial and economic growth rates are positively correlated only up to a certain threshold of financial activity. In our panel of economies, the average level of financial activity is well above this threshold, implying that the total elasticity between finance and growth is negative in the long run.
    Keywords: Growth;Business Cycles;Hysteresis;Financial Cycles;Growth Cycles
    JEL: E32 E44
    Date: 2016–12
  2. By: Baumeister, Christiane; Kilian, Lutz
    Abstract: We explore the effect on U.S. real GDP growth of the sharp and sustained decline in the global price of crude oil and hence in the U.S. price of gasoline after June 2014. Our analysis suggests that this decline produced a cumulative stimulus of about 0.9 percentage points of real GDP growth by raising private real consumption and non-oil related business investment and an additional stimulus of 0.04 percentage points reflecting a shrinking petroleum trade deficit. This stimulating effect, however, has been largely offset by a large reduction in real investment by the oil sector. Hence, the net stimulus since June 2014 has been close to zero. We show that the response of the U.S. economy was not fundamentally different from that observed after the oil price decline of 1986. Then as now the response of the U.S. economy is consistent with standard economic models of the transmission of oil price shocks. We found no evidence of an additional role for frictions in reallocating labor across sectors or for increased uncertainty about the price of gasoline in explaining the sluggish response of U.S. real GDP growth. Nor did we find evidence of financial contagion, of spillovers from oil-related investment to non-oil related investment, of an increase in household savings, or of households deleveraging.
    Keywords: oil loans; oil price decline; reallocation; shale oil; Stimulus; uncertainty
    JEL: E32 Q43
    Date: 2017–01
  3. By: António Afonso; João Tovar Jalles
    Abstract: We compute time-varying responses of the sovereign debt ratio to primary budget balances for 13 advanced economies between 1980 and 2012, and assess how fiscal sustainability reacts to different characteristics of government debt. We find that the fiscal sustainability time-varying coefficient increases the higher the share of public debt denominated in foreign currency. Moreover, the countries become more sustainable if they contract a higher share of long-term public debt, if it is held by the central bank or if it is easily marketable. Key Words : sovereign debt, fiscal sustainability, time-varying coefficients, debt composition
    JEL: C23 E62 F34 H63
    Date: 2017–01

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