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on Financial Development and Growth |
| By: | Popov, Alexander |
| Abstract: | This paper reviews and appraises the body of empirical research on the association between financial markets and economic growth that has accumulated over the past quarter-century. The bulk of the historical evidence suggests that financial development affects economic growth in a positive, monotonic way, yet recent research endeavors have provided useful and important qualifications of this conventional wisdom. Moreover, the proliferation of micro-level datasets has enabled researchers to study more precise links between theory and measurement. The paper highlights the mechanisms through which financial markets benefit society, as well as the channels through which finance can slow down long-term growth. JEL Classification: O4, G1 |
| Keywords: | financial markets, growth |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20172115&r=fdg |
| By: | Schumacher, Malte D.; Żochowski, Dawid |
| Abstract: | We study a quantitative DSGE model linking a state of the art asset pricing framework a la Kung and Schmid (2015) with a constraint on leverage as in Gertler and Kiyotaki a (2010). We show that a mere increase in the probability of firms being financially constrained leads to an increase in risk premia. Even for a small adverse shock to productivity a drop in asset valuation restrains firms from outside financing and by that induces a persistent low growth environment. In our framework a constraint on leverage induces countercyclical risk premia in equity markets even when it does not bind. JEL Classification: D53, G01, G12 |
| Keywords: | asset pricing, endogenous growth, financial accelerator, risk premia |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20172114&r=fdg |
| By: | Claudio Battiati (LUISS University, School of European Political Economy) |
| Abstract: | Recent evidence suggests that credit booms and asset price bubbles may undermine economic growth even as they occur, regardless of whether a crisis follows, by crowding out investment in more productive, R&D-intensive industries. This paper incorporates Schumpeterian endogenous growth into a DSGE model with credit-constrained entrepreneurs to show how shocks affecting firms' access to credit can generate boom-bust cycles featuring large fluctuations in land prices, consumption, and investment. During the expansion, rising land prices tend to crowd out capital and (especially) R&D investment: in the long run, this results in lower productivity levels, which in turn implies lower levels of aggregate output and consumption. Moreover, higher initial loan-to-value ratios tend to be associated with larger macroeconomic fluctuations. A counter-cyclical LTV ratio targeting credit growth has relevant stabilization effects but brings about small gains in terms of long-run consumption levels, and thus of welfare. |
| Keywords: | Schumpeterian Growth, Financial frictions, Land prices, Macroprudential policy |
| JEL: | E22 E32 E44 O30 O40 |
| Date: | 2017–12–11 |
| URL: | http://d.repec.org/n?u=RePEc:lie:wpaper:48&r=fdg |
| By: | Laura Carvalho; Gilberto Tadeu Lima, Gustavo Pereira Serra |
| Abstract: | Motivated to some extent by the empirical significance of student loans to human capital accumulation, this paper incorporates debt-financed knowledge capital accumulation to a demand-led model of capacity utilization and growth. Average labor productivity varies positively with the average stock of knowledge capital across the labor force. Any increase in labor productivity ensuing from knowledge capital accumulation is fully passed on to the real wage, but insufficient aggregate effective demand, by generating unemployment, gives rise to underutilization of the knowledge capital capacity. Both the stability properties and financial fragility (in the Minskyan sense) of the long-run equilibrium outcome depend on how the debt servicing of working households is specified. The same dependence applies to how the rates of physical capital utilization and labor employment (where the latter also measures the rate of knowledge capital utilization) respond to changes in the ratio of working households’ debt to physical capital |
| Keywords: | Knowledge capital; debt; capacity utilization; employment |
| JEL: | E12 E22 E24 |
| Date: | 2017–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:spa:wpaper:2017wpecon32&r=fdg |
| By: | Virgiliu Midrigan (New York University); Fernando Leibovici (Federal Reserve Bank of St. Louis); Julio Blanco (University of Michigan) |
| Abstract: | We study an economy with capital-skill complementarities, an endogenous human capital and occupational choice decision and firm-level financing constraints. We ask: to what extent do financial frictions reduce output per worker across countries? In our economy, firm-level frictions depress physical capital accumulation and, in equilibrium, also reduce the acquisition of human capital, thus amplifying the decline in output per worker. We estimate the model using repeated cross-sections of individual workers' educational attainment, labor earnings and occupational choice, both for U.S. time-series, as well as for a cross-section of countries. We find that financial frictions have much larger effects on output per worker in our economy than they do in economies with a fixed supply of human capital. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:1187&r=fdg |