Financial Systems, Growth, and Volatility : Searching for the Perfect Fit
This paper builds on recent research examining the impact of finance on growth, looking at the effect of the financial system on volatility in gross domestic product per capita and consumption per capita growth. It also examines the impact of credi...
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| Format: | Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2016
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| Online Access: | http://documents.worldbank.org/curated/en/2016/06/26511057/financial-systems-growth-volatility-searching-perfect-fit http://hdl.handle.net/10986/24640 |
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okr-10986-24640 |
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oai_dc |
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Digital Repository |
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Foreign Institution |
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Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
| language |
English en_US |
| topic |
ENTERPRISE CREDIT FINANCIAL SYSTEM DEVELOPMENT GROWTH RATES OUTPUT VOLATILITY CREDIT MARKETS MONETARY POLICY DEPOSIT BORROWER CAPITA INCOME FINANCIAL INNOVATION ECONOMIC GROWTH PEOPLE AMERICAN ECONOMIC REVIEW CAPITAL ACCUMULATION MONETARY ECONOMICS MARKET DEVELOPMENTS GLOBAL MARKETS INCOME INTEREST ENROLLMENT FINANCIAL LIBERALIZATIONS PRIVATE CREDIT STOCK MARKET FINANCIAL SECTOR POLICIES INCOME GROUP GROWTH VOLATILITY EQUITY MARKET POLITICAL ECONOMY MORTGAGE WELFARE MORTGAGE LENDING ASYMMETRIC INFORMATION BORROWERS TRADE OPENNESS SUBSIDY CORRUPTION WEALTH SAVING INFLATION INTERNATIONAL BANK FINANCIAL CREDIT FINANCIAL FRAGILITY LEVELS OF CREDIT EXTERNAL FINANCE MACROECONOMIC STABILITY STANDARD DEVIATION SAVINGS MORTGAGES PER CAPITA INCOME HOUSING FINANCE MARKET DEVELOPMENT MORAL HAZARD ADVANCED ECONOMIES HIGHER VOLATILITY RISKY BORROWERS CURRENT ACCOUNT CRISIS FINANCIAL INSTITUTIONS DEBT CAPITAL MARKET FINANCIAL CRISES HIGH INCOME FINANCIAL FLOWS BUSINESS CYCLE INCOME LEVELS MACROECONOMIC FLUCTUATIONS FINANCIAL REFORMS BANKERS FLUCTUATIONS BANK CREDIT GROSS DOMESTIC PRODUCT FINANCIAL SYSTEM FINANCE LIBERALIZATION BANKS EXPENDITURE MORTGAGE CREDIT EQUITY HUMAN CAPITAL FEDERAL RESERVE CREDIT CONSTRAINTS ECONOMIC PERFORMANCE CAPITAL VOLATILITY BANKING CRISIS LONG-RUN GROWTH BANK FOREIGN DIRECT INVESTMENT SYSTEMIC BANKING CRISES CREDIT MACROECONOMICS LEVEL OF DEVELOPMENT INCOME DISTRIBUTION HOUSEHOLD EXPENDITURES ENTERPRISE CAPITAL FLOWS PROPERTIES PRIVATE SECTOR REAL EXCHANGE RATE UNDERDEVELOPMENT CAPITA GROWTH GLOBAL FINANCIAL MARKET MONETARY SHOCKS GROWTH RELATIONSHIP ACCESS TO CREDIT ECONOMIC DEVELOPMENT FINANCIAL LIBERALIZATION INTERNATIONAL MONETARY FUND FINANCIAL DEVELOPMENT FINANCIAL MARKET MACROECONOMIC VOLATILITY INVESTMENT BARTER FINANCIAL INTERMEDIATION GROWTH REGRESSIONS FINANCIAL INTERMEDIARIES CREDIT EXTENSION HOUSEHOLDS COLLATERAL FINANCIAL MARKETS FINANCIAL ASSETS RATE OF GROWTH FINANCIAL INTERMEDIARY EXTERNAL SHOCKS INVESTMENTS BORROWING BANKING SUPERVISION EXCHANGE RATE RISK AVERSION ENROLMENT RATE BANKING CRISES FINANCIAL SYSTEMS CAPITAL ACCOUNT FINANCIAL SECTOR DEVELOPMENT FINANCIAL DEPTH INEQUALITY GROWTH |
| spellingShingle |
ENTERPRISE CREDIT FINANCIAL SYSTEM DEVELOPMENT GROWTH RATES OUTPUT VOLATILITY CREDIT MARKETS MONETARY POLICY DEPOSIT BORROWER CAPITA INCOME FINANCIAL INNOVATION ECONOMIC GROWTH PEOPLE AMERICAN ECONOMIC REVIEW CAPITAL ACCUMULATION MONETARY ECONOMICS MARKET DEVELOPMENTS GLOBAL MARKETS INCOME INTEREST ENROLLMENT FINANCIAL LIBERALIZATIONS PRIVATE CREDIT STOCK MARKET FINANCIAL SECTOR POLICIES INCOME GROUP GROWTH VOLATILITY EQUITY MARKET POLITICAL ECONOMY MORTGAGE WELFARE MORTGAGE LENDING ASYMMETRIC INFORMATION BORROWERS TRADE OPENNESS SUBSIDY CORRUPTION WEALTH SAVING INFLATION INTERNATIONAL BANK FINANCIAL CREDIT FINANCIAL FRAGILITY LEVELS OF CREDIT EXTERNAL FINANCE MACROECONOMIC STABILITY STANDARD DEVIATION SAVINGS MORTGAGES PER CAPITA INCOME HOUSING FINANCE MARKET DEVELOPMENT MORAL HAZARD ADVANCED ECONOMIES HIGHER VOLATILITY RISKY BORROWERS CURRENT ACCOUNT CRISIS FINANCIAL INSTITUTIONS DEBT CAPITAL MARKET FINANCIAL CRISES HIGH INCOME FINANCIAL FLOWS BUSINESS CYCLE INCOME LEVELS MACROECONOMIC FLUCTUATIONS FINANCIAL REFORMS BANKERS FLUCTUATIONS BANK CREDIT GROSS DOMESTIC PRODUCT FINANCIAL SYSTEM FINANCE LIBERALIZATION BANKS EXPENDITURE MORTGAGE CREDIT EQUITY HUMAN CAPITAL FEDERAL RESERVE CREDIT CONSTRAINTS ECONOMIC PERFORMANCE CAPITAL VOLATILITY BANKING CRISIS LONG-RUN GROWTH BANK FOREIGN DIRECT INVESTMENT SYSTEMIC BANKING CRISES CREDIT MACROECONOMICS LEVEL OF DEVELOPMENT INCOME DISTRIBUTION HOUSEHOLD EXPENDITURES ENTERPRISE CAPITAL FLOWS PROPERTIES PRIVATE SECTOR REAL EXCHANGE RATE UNDERDEVELOPMENT CAPITA GROWTH GLOBAL FINANCIAL MARKET MONETARY SHOCKS GROWTH RELATIONSHIP ACCESS TO CREDIT ECONOMIC DEVELOPMENT FINANCIAL LIBERALIZATION INTERNATIONAL MONETARY FUND FINANCIAL DEVELOPMENT FINANCIAL MARKET MACROECONOMIC VOLATILITY INVESTMENT BARTER FINANCIAL INTERMEDIATION GROWTH REGRESSIONS FINANCIAL INTERMEDIARIES CREDIT EXTENSION HOUSEHOLDS COLLATERAL FINANCIAL MARKETS FINANCIAL ASSETS RATE OF GROWTH FINANCIAL INTERMEDIARY EXTERNAL SHOCKS INVESTMENTS BORROWING BANKING SUPERVISION EXCHANGE RATE RISK AVERSION ENROLMENT RATE BANKING CRISES FINANCIAL SYSTEMS CAPITAL ACCOUNT FINANCIAL SECTOR DEVELOPMENT FINANCIAL DEPTH INEQUALITY GROWTH Islam, Roumeen Financial Systems, Growth, and Volatility : Searching for the Perfect Fit |
| relation |
Policy Research Working Paper;No. 7723 |
| description |
This paper builds on recent research
examining the impact of finance on growth, looking at the
effect of the financial system on volatility in gross
domestic product per capita and consumption per capita
growth. It also examines the impact of credit on the
composition of growth. The findings show that financial
development smooths growth in gross domestic product and
consumption per capita, but only up to a point. At high
levels of credit, further credit is positively associated
with volatility even after controlling for the quality of
institutions and periods of financial crises. In large
financial systems, finance may not help individuals smooth
consumption volatility. The threshold at which
finance's effect may be volatility enhancing may be
lower than previously thought. In terms of the impact on
growth, total credit (and credit to firms) has a nonlinear
relationship, with rising credit supporting higher growth up
to a point, beyond which the additional impact of finance on
growth is negative. This can be explained by finance flowing
into less productive activities (or drawing other resources
into less productive activities). In addition, household
credit is negatively related to manufacturing sector growth,
although credit to firms has a positive relationship to
manufacturing growth. This may be explained by the fact that
much of household credit is used to finance the consumption
(including imports) of goods and services broadly (not just
manufacturing sector goods) or investment in housing. |
| format |
Working Paper |
| author |
Islam, Roumeen |
| author_facet |
Islam, Roumeen |
| author_sort |
Islam, Roumeen |
| title |
Financial Systems, Growth, and Volatility : Searching for the Perfect Fit |
| title_short |
Financial Systems, Growth, and Volatility : Searching for the Perfect Fit |
| title_full |
Financial Systems, Growth, and Volatility : Searching for the Perfect Fit |
| title_fullStr |
Financial Systems, Growth, and Volatility : Searching for the Perfect Fit |
| title_full_unstemmed |
Financial Systems, Growth, and Volatility : Searching for the Perfect Fit |
| title_sort |
financial systems, growth, and volatility : searching for the perfect fit |
| publisher |
World Bank, Washington, DC |
| publishDate |
2016 |
| url |
http://documents.worldbank.org/curated/en/2016/06/26511057/financial-systems-growth-volatility-searching-perfect-fit http://hdl.handle.net/10986/24640 |
| _version_ |
1764457254093848576 |
| spelling |
okr-10986-246402021-04-23T14:04:23Z Financial Systems, Growth, and Volatility : Searching for the Perfect Fit Islam, Roumeen ENTERPRISE CREDIT FINANCIAL SYSTEM DEVELOPMENT GROWTH RATES OUTPUT VOLATILITY CREDIT MARKETS MONETARY POLICY DEPOSIT BORROWER CAPITA INCOME FINANCIAL INNOVATION ECONOMIC GROWTH PEOPLE AMERICAN ECONOMIC REVIEW CAPITAL ACCUMULATION MONETARY ECONOMICS MARKET DEVELOPMENTS GLOBAL MARKETS INCOME INTEREST ENROLLMENT FINANCIAL LIBERALIZATIONS PRIVATE CREDIT STOCK MARKET FINANCIAL SECTOR POLICIES INCOME GROUP GROWTH VOLATILITY EQUITY MARKET POLITICAL ECONOMY MORTGAGE WELFARE MORTGAGE LENDING ASYMMETRIC INFORMATION BORROWERS TRADE OPENNESS SUBSIDY CORRUPTION WEALTH SAVING INFLATION INTERNATIONAL BANK FINANCIAL CREDIT FINANCIAL FRAGILITY LEVELS OF CREDIT EXTERNAL FINANCE MACROECONOMIC STABILITY STANDARD DEVIATION SAVINGS MORTGAGES PER CAPITA INCOME HOUSING FINANCE MARKET DEVELOPMENT MORAL HAZARD ADVANCED ECONOMIES HIGHER VOLATILITY RISKY BORROWERS CURRENT ACCOUNT CRISIS FINANCIAL INSTITUTIONS DEBT CAPITAL MARKET FINANCIAL CRISES HIGH INCOME FINANCIAL FLOWS BUSINESS CYCLE INCOME LEVELS MACROECONOMIC FLUCTUATIONS FINANCIAL REFORMS BANKERS FLUCTUATIONS BANK CREDIT GROSS DOMESTIC PRODUCT FINANCIAL SYSTEM FINANCE LIBERALIZATION BANKS EXPENDITURE MORTGAGE CREDIT EQUITY HUMAN CAPITAL FEDERAL RESERVE CREDIT CONSTRAINTS ECONOMIC PERFORMANCE CAPITAL VOLATILITY BANKING CRISIS LONG-RUN GROWTH BANK FOREIGN DIRECT INVESTMENT SYSTEMIC BANKING CRISES CREDIT MACROECONOMICS LEVEL OF DEVELOPMENT INCOME DISTRIBUTION HOUSEHOLD EXPENDITURES ENTERPRISE CAPITAL FLOWS PROPERTIES PRIVATE SECTOR REAL EXCHANGE RATE UNDERDEVELOPMENT CAPITA GROWTH GLOBAL FINANCIAL MARKET MONETARY SHOCKS GROWTH RELATIONSHIP ACCESS TO CREDIT ECONOMIC DEVELOPMENT FINANCIAL LIBERALIZATION INTERNATIONAL MONETARY FUND FINANCIAL DEVELOPMENT FINANCIAL MARKET MACROECONOMIC VOLATILITY INVESTMENT BARTER FINANCIAL INTERMEDIATION GROWTH REGRESSIONS FINANCIAL INTERMEDIARIES CREDIT EXTENSION HOUSEHOLDS COLLATERAL FINANCIAL MARKETS FINANCIAL ASSETS RATE OF GROWTH FINANCIAL INTERMEDIARY EXTERNAL SHOCKS INVESTMENTS BORROWING BANKING SUPERVISION EXCHANGE RATE RISK AVERSION ENROLMENT RATE BANKING CRISES FINANCIAL SYSTEMS CAPITAL ACCOUNT FINANCIAL SECTOR DEVELOPMENT FINANCIAL DEPTH INEQUALITY GROWTH This paper builds on recent research examining the impact of finance on growth, looking at the effect of the financial system on volatility in gross domestic product per capita and consumption per capita growth. It also examines the impact of credit on the composition of growth. The findings show that financial development smooths growth in gross domestic product and consumption per capita, but only up to a point. At high levels of credit, further credit is positively associated with volatility even after controlling for the quality of institutions and periods of financial crises. In large financial systems, finance may not help individuals smooth consumption volatility. The threshold at which finance's effect may be volatility enhancing may be lower than previously thought. In terms of the impact on growth, total credit (and credit to firms) has a nonlinear relationship, with rising credit supporting higher growth up to a point, beyond which the additional impact of finance on growth is negative. This can be explained by finance flowing into less productive activities (or drawing other resources into less productive activities). In addition, household credit is negatively related to manufacturing sector growth, although credit to firms has a positive relationship to manufacturing growth. This may be explained by the fact that much of household credit is used to finance the consumption (including imports) of goods and services broadly (not just manufacturing sector goods) or investment in housing. 2016-07-07T21:35:43Z 2016-07-07T21:35:43Z 2016-06 Working Paper http://documents.worldbank.org/curated/en/2016/06/26511057/financial-systems-growth-volatility-searching-perfect-fit http://hdl.handle.net/10986/24640 English en_US Policy Research Working Paper;No. 7723 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper |