financial markets and growth the last five years have witnessed a resurgence of interest in the relationship between financial intermediation and economic growth this issue had been extensively studied nearly two decades earlier by goldsmith 1969 mckinnon 1973 shaw 1973 and others who produced considerable evidence that financial development correlates with growth but their work though insightful lacked analytical foundations in traditional growth theory financial intermediation could be related to the level of the capital stock per worker or to the level of productivity but not to their respective growth rates the latter were ascribed to exogenous technical progress the recent revival of interest in the link between financial development and growth stems mainly from the insights and techniques of endogenous growth models which have shown that there can be self sustaining growth without exogenous technical progress and that the growth rate can be related to preferences technology income distribution and institutional arrangements this provides the theoretical underpinning that early contributors lacked tinancial intermediation can be shown to have not only level effects but also growth effects the resulting models have offered important insights into the effect of financial development on growth and vice versa they have also provided new impetus to empirical research on these issues this paper reviews the ground covered so far on the theoretical and empirical front and points to some still unresolved issues

financial development income inequality and the redistributive effects of monetary policy abstract how should financial systems be designed to limit income inequality does the redistributive impact of inflation depend on the extent of financial development should optimal monetary policy vary across countries with different levels of financial development in order to address these questions we develop a monetary growth production model with heterogeneous agents in our economy optimal policy needs to weigh the effects of policy across two groups capital owners and individuals who hold liquid assets in this environment we compare various economies that are identical in every aspect except for their level of financial development interestingly we generally find that economies at the highest stages of financial development economies in which money bonds and claims to capital are traded experience the highest amount of capital formation and social welfare as long as inflation is low yet regardless of the extent of financial development there are generally redistributive consequences from inflation moreover the model tends to predict that economies with relatively small stock markets produce the highest levels of income inequality empirical work examining the role of money growth and the implications of financial development across countries is consistent with predictions from the model

finance and growth in a bank based economy is it quantity or quality that matters abstract most finance growth studies approximate the size of financial systems rather than the quality of intermediation to explain economic growth differentials furthermore the neglect of systematic differences in cross country studies could drive the result that finance matters we suggest a measure of bank s intermediation quality using bank specific efficiency estimates and focus on the regions of one economy only germany this quality measure has a significantly positive effect on growth this result is robust to the exclusion of banks operating in multiple regions controlling for the proximity of financial markets when distinguishing different banking sectors active in germany and when excluding the structurally weaker east from the sample

financial development and the fdi growth nexus the malaysian experience this article examines the fdi growth nexus in the small open economy of malaysia by controlling for the level of financial development financial development is proxied by a composite index which is a summary measure of four financial development indicators using time series data from 1965 to 2004 the results show that fdi and financial development are positively related to output in the long run the impact of fdi on output is enhanced through financial development to supplement these findings we assess the causal relationships between the variables using the recent causality tests available in the literature the results indicate that economic growth causes fdi growth in the long run but no feedback relationship is observed

paternalism and the credbility problem in a centrally planned economy abstract the paper utilizes an infinitely repeated game framework with complete information and common knowledge assumption to illustrate the concepts of credibility paternalism storming kornai s soft budget constraint and pripiska

the economic growth effect of offshore banking in host territories evidence from the caribbean summary following the success of renowned caribbean offshore centers several small islands have enacted offshore banking policies as a strategy for increasing economic growth several empirical studies have assessed the growth effect of such policies but none accounts for sector size when estimating its growth impact this study contributes to this literature by estimating the magnitude of offshore activity in each territory and using this estimate as a continuous variable in an economic growth model the results provide support for the hypothesis that facilitating offshore banking stimulates economic growth in host islands and that the benefit is proportional to sector size

interrelationships among banks stock markets and economic growth an empirical investigation this article utilizes a simultaneous equations model to study the relationships among economic growth banking and stock market development in contrast to conventional instrumental variable approach we implement the analysis via the methodology of identification through heteroscedasticity using beck and levine 2004 dataset we find that each of the three variables interacts in important ways while both are conducive to economic growth banking development matters more for growth in low income countries and stock market development is more favourable to growth in high income or low inflation ones the data also reveal coexistence of a positive effect of banking development on stock market development and a negative effect of stock market development on banking development besides the feedback effects of growth on both banking and stock market development are found

banking development socioeconomic structure and income inequality abstract using rich unique data from the italian local credit markets provinces this paper investigates the impact of local banking development on income inequality and the role of the socioeconomic structure in this link exploiting the italian historical banking regulation to instrument for the local presence of bank branches we find that local banking development mitigates income inequality however the finance inequality nexus manifests itself only in relatively advanced areas when we study the structural channels of influence we uncover evidence that banking development can reduce inequality by affecting geographical mobility and urbanization while it has modest effects through the development of material infrastructures and human capital

financial development and relationship evolvement among money supply economic growth and inflation a comparative study from the u s and china abstractwith the rapid development of financial markets economic financialization degree can no longer be ignored for its influence on the relationship among money supply economic growth and inflation combined with the horizontal comparison of china this article concentrates on the financial development and evolution from the period of industrialization to economic financialization in the u s systematic and comprehensive analysis is first done on the variation of overall economic operation then impulse response function based on var model is applied to study the dynamic influence of economic financialization degree on the relationship evolvement the empirical results show that economic financialization makes good explanation of the deviating phenomenon among money supply economic growth and inflation and the interactive relationship between fictitious economy and real economy is becoming closer and closer furthermore compared to the u s china still belongs to the process of transforming from

a stopping time approach to assessing the effectiveness of foreign exchange intervention an application to japanese data abstract i propose a new methodology to assess the effect of foreign exchange fx intervention based on the probability of an fx rate reaching the variable is the probability of an fx rate reaching a particular threshold before reaching another importantly the probability depends on not only the level but also the trend and volatility of a current fx rate when an intervention changes the probability in a desired direction the intervention is effective the notable feature of the probability is that it considers both the level and volatility of an fx rate comprehensively while previous studies have examined these effects of fx intervention separately empirical results based on regression and nearest neighbor analyses applied to japanese data indicate that publicity and size are significant in the effectiveness of intervention

strategic behavior and the problem of storming in a centrally planned economy abstract it is shown that if the common knowledge assumption is properly utilized then it is possible to dispose of some unnecessary restrictions on the game theoretic account of storming presented by alexeev

the financial development and growth nexus a meta analysis this is the accepted manuscript the final version is available from wiley at http onlinelibrary wiley com doi 10 1111 joes 12086 abstract

financial development and economic growth a meta analysis we analyze 1334 estimates from 67 studies that examine the effect of financial development on economic growth taken together the studies imply a positive and statistically significant effect but the individual estimates vary widely we find that both research design and heterogeneity in the underlying effect play a role in explaining the differences in results studies that do not address endogeneity tend to overstate the effect of finance on growth while the effect seems to be weaker in less developed countries the effect decreases worldwide after the 1980s our results also suggest that stock markets support faster economic growth than other financial intermediaries

does speed kill lending booms and their consequences in croatia abstract recent research connects lending booms with increased risks of banking and currency crisis another strand of literature connects financial deepening with long term growth together these findings pose dilemmas for policymakers in the case of croatia we find that rapid loan growth increased the probability of credit quality deterioration and stimulated current account and foreign debt problems conventional monetary tightening was not very effective due to capital inflows unconventional measures such as capital controls also had limited effectiveness we propose limiting negative impacts by pro active monetary policy more restrictive fiscal policy and increased capital requirements for fast growing banks rather than measures to prevent lending booms ex ante

inflation and growth stories short and tall this paper reviews the stories that economists tell about the growth effects of inflation informal accounts are common but there are few models that get to grips with the effects that are probably central partly as a result of this and partly as a result of many econometric problems much of the empirical evidence remains unconvincing the paper assesses the various contributions and suggests possible improvements

the international monetary system an analysis of alternative regimes abstract this is an exercise in the positive economics of alternative monetary regimes the behavior of output and prices is compared using a stochastic specification which allows asymptotic variances to be obtained without difficulty free floating of exchange rates together with national money supply targets is analyzed first with and without the presence of fads in the exchange rate two alternatives for monetary coordination are then considered first is mckinnon s proposal to fix nominal exchange rates and stabilize aggregate monetary growth or average inflation second is williamson s system of target zones for stable real exchange rates complemented by nominal income targets for fiscal policy

income inequality and financial reform in asia the role of human capital we investigate whether financial reform can reduce income inequality in asia with particular emphasis on the role of human capital extending galor and zeira 1993 we demonstrate that financial reform is effective in reducing income inequality and the effect is more profound in a country with higher human capital using the data for 18 countries in asia the region with the most promising financial reform we confirm our theoretical finding in addition among disaggregated financial reforms lift of credit control better banking supervision and security market development seem to be significantly associated with reduction of income inequality

is the relationship between financial development and economic growth monotonic evidence from a sample of middle income countries summary we revisit the relationship between financial development and economic growth in a panel of 52 middle income countries over the 1980 2008 period using pooled mean group estimations in a dynamic heterogeneous panel setting we show that there is an inverted u shaped relationship between finance and growth in the long run in the short run the relationship is insignificant this suggests that too much finance can exert a negative influence on growth in middle income countries the finding of a non monotonic effect of financial development on growth is confirmed by estimating a threshold model

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

inflation thresholds and the finance growth nexus abstract the robustness of the cross sectional relationship between the size of a country s financial sector and its rate of economic growth is by now well established in this article we examine whether the strength of this relationship varies with the inflation rate using five year averages of standard measures of financial development inflation and growth for 84 countries from 1960 to 1995 a series of rolling panel regressions show that there is an inflation threshold for the finance growth relationship that lies between 13 and 25 percent when inflation exceeds the threshold finance ceases to increase economic growth we also find that the level of financial depth varies inversely with inflation in low inflation environments and that disinflation is associated with a positive effect of financial depth on growth

revisiting the finance growth nexus the turkish case 1980 2010 abstractin turkey the empirical results on the link between financial development and economic growth are mixed the existing studies do not take into account the fact that turkey has experienced endemic political and economic instabilities over extended periods this study aims to analyse the role of macroeconomic instability and public borrowing on the finance growth nexus in turkey by using time series econometric techniques over the 1980 2010 period in doing so we attempt to extend the existing literature by taking into account the role of macroeconomic instability as well as public borrowing our results reveal that there are additional albeit indirect channels between finance and growth via the effects of macro instability and public borrowing on financial development and economic growth after taking into account the effects of overall instability and public borrowing we found that growth financial development relationship is bidirectional and permanent in other words in turkish case eco

the permanent effects of innovation on financial depth abstract this paper examines links between innovation in the us intermediating sector and financial deepening from 1872 1929 technical progress is modeled in a credit rationing framework with limited liability as an enhanced ability of intermediaries to monitor loan recipients this allows an innovating lender to earn temporary rents by lowering loan rates and inducing firms with higher repayment prospects to apply rents persist until others adopt the improvement and competition for loanable funds raises the deposit rate subsequent deposits ensure that more funds are channeled to projects of higher average quality the link between the loan deposit spread and financial deepening implied by the model is then examined in an unobservable components framework the finding that permanent reductions of 1 in the spread of new york banks are associated with increases in financial depth that range from 1 7 to nearly 4 is consistent with a role for efficiency improvements in the rapid financial deepening that characterized the pre 1930 us economy

a survey of recent developments in the literature of finance and growth this paper provides a survey of the recent progress in the literature of financial development and economic growth the survey highlights that most empirical studies focus on either testing the role of financial development in stimulating economic growth or examining the direction of causality between these two variables although the positive role of finance on growth has become a stylized fact there are some methodological reservations about the results from these empirical studies several key issues unresolved in the literature are highlighted the paper also points to several directions for future research

financial intermediation and economic performance historical evidence from five industrialized countries this paper examines the nature of links between the intensity of financial intermediation and economic performance that operated in the united states the united kingdom canada norway and sweden over the 1870 1929 period after describing the coevolution of the financial and real sectors in these countries vector error correction models vecms establish the quantitative importance of long run relationships among measures of financial intensity and real per capita levels of output and the monetary base granger causality tests then suggest a leading role for the intermediation variables in real sector activity while feedback effects are largely insignificant the results suggest an important role for intermediation in the rapid industrial transformations of all five countries

currency substitution inflation and welfare abstract currency substitution affects the mapping between social welfare and inflation by altering the underlying money demand function and influencing interest rates in order to explore the essence of this effect i build a model with working capital under which foreign currency is substituted with the less liquid components of domestic money the framework closely mimics the actual pattern of currency substitution across varying rates of inflation and enables the study of an additional channel that works through the impact of currency substitution on interest rates it is found that there is a threshold inflation rate which turns out to be 44 under baseline calibration below which currency substitution decreases welfare and vice versa a practical implication is that at inflation rates lower greater than the threshold the potential welfare gains from disinflation to a near zero inflation rate are higher lower if there is currency substitution than otherwise

is globalization detrimental to financial development further evidence from a very large emerging economy with significant orientation towards policies abstractthis study attempts to explore the relationship between globalization and financial development by endogenizing economic growth population density inflation and institutional quality for india during the period from 1971 2013 using the more conclusivecombined cointegration method the study provides evidence of cointegration among these variables the long run and short run estimates from the ardl model and causality tests respectively suggest that globalization in its all forms political social and economic and its overall measure as well as inflation are detrimental to financial development while economic growth and population density both promote financial development furthermore the results also point out that institutional quality is not conducive to financial development in india and there exists a feedback effect between financial development and inflation moreover financial development is influenced by economic growth institutional quality and population density

the effectiveness of japanese foreign exchange interventions during 1991 2001 abstract this paper empirically analyzes the effectiveness of japanese intervention policies on the yen us dollar exchange rate over the past decade using actual intervention data this paper suggests that japanese interventions were effective in affecting exchange rate movements when such operations were coordinated with the fed furthermore intervention operations were always associated with an increase in exchange rate volatility

historical evidence on the finance trade growth nexus abstract we study linkages between financial development international trade and long run growth using data since 1880 for 17 now developed atlantic economies and a set of cross country and dynamic panel data models we find that finance and trade reinforce each other in data before 1930 but that these effects do not persist after the second world war financial development affects growth positively throughout the sample period while trade affects growth strongly and independently after 1945 we attribute the rising importance of trade to major post world war ii changes in tariffs and quantity restrictions associated with the gatt the establishment of the european common market and the gradual elimination of capital controls after 1973 the findings are robust to the use of deep fundamentals such as legal origin and indicators of the political environment as instruments for financial development and trade financial development however links more closely than trade to these fundamentals

intraday effects of foreign exchange intervention by the bank of japan abstract we examine the effects of intervention by the bank of japan using intraday data from oct 1 1992 to sept 30 1993 news related to the bank of japan s intervention in the jpy market was retrieved from reuters headlines we find that jpy volatility varies significantly differently across periods from 1 h before to 1 h after reuters intervention reports results from arch models show that intervention by the bank of japan has a positive and significant impact on jpy volatility particularly at high frequencies 5 and 10 min intervals we also find that our intervention proxy has the largest effect upon high frequency volatility 30 to 45 min prior to reuters reports

thresholds in the finance growth nexus a cross country analysis thresholds of inflation government size trade openness and per capita income for the finance growth nexus are investigated using five year averages of standard variables for 84 countries from 1965 to 2004 the results suggest that i high inflation crowds out positive effects of financial depth on long run growth ii small government sizes hurt the finance growth nexus in low income countries while large government sizes hurt high income countries iii low levels of trade openness are sufficient for finance growth nexus in high income countries but low income countries need higher levels of trade openness for similar magnitudes of the finance growth nexus and iv catch up effects through the finance growth nexus are higher for moderate per capita income levels

why do central banks intervene abstract intervention by central banks in terms of buying and selling foreign currency has been a major activity in recent years this paper investigates the motivations for such policy and the evidence for its effectiveness we use high quality daily data on the dollar amounts of intervention by the central banks of the us and germany we also use information on agreed g7 target levels for the dm and yen nominal exchange rates daily nominal dollar exchange rate returns are well described as a martingale garch process and we find little evidence that the different types of intervention have had much effect on the conditional mean of exchange rate returns there is some evidence that intervention is associated with slight increases in the volatility of exchange rate returns while little evidence is found for the effectiveness of intervention the motivations are more clear in particular from the application of probit analysis we find that the probability of intervention is determined by the magnitude of the deviation of the nominal exchange rate from the agreed target level and to a lesser extent by the current volatility of exchange rates

equity markets and growth cross country evidence on timing and outcomes 1980 1995 abstract the rapid expansion of organized equity exchanges in both emerging and developed markets has prompted policymakers to raise important questions about their macroeconomic impact yet the need to focus on recent data poses implementation difficulties for econometric studies of dynamic interactions between stock markets and economic performance in individual countries this paper overcomes some of these difficulties by applying recent developments in the analysis of panels with a small time dimension to estimate vector autoregressions for a set of 47 countries with annual data for 1980 1995 after describing recent theories on the role of stock markets in growth and considering a pure cross sectional empirical approach our panel vars show leading roles for stock market liquidity and the intensity of activity in traditional financial intermediaries on per capita output the findings underscore the potential gains associated with developing deep and liquid financial markets in an increasingly global economy

a new database on the structure and development of the financial sector this article introduces a new database of indicators of financial structure and financial development across countries and over time the database is unique in that it combines a wide variety of indicators that measure the size activity and efficiency of financial intermediaries and markets it improves on previous efforts by presenting data on the public share of commercial banks introducing indicators of the size and activity of nonbank financial institutions and constructing measures of the size of bond and primary equity markets this article introduces a new database the first to provide comprehensive measures of the development structure and performance of the financial sector this database is the first to define and construct indicators of the size and activity of nonbank financial intermediaries such as insurance companies pension funds and non deposit money banks it is also the first to include indicators of the size of primary equity markets and primary and secondary bond markets in constructing the database authors carefully deflate measures and match stock and flow variables

making the most of high inflation this article examines the relationship between the real effects of inflation and its level in countries with frequent episodes of high inflation the real effects are computed as asymmetric impulse responses of output to inflation separately in the regimes with different signs of the differences between the expected inflation and the predicted output neutral inflation it is found that with the increase in inflation such effects increase in the regime with the positive sign relatively to the effects in the regime with the negative sign it is also shown that this finding is valid for most countries with high inflation episodes where inflation is greater than 4 8 for at least 25 of quarterly observations this leads to a simple policy prescription that in economies with frequent high inflation episodes anti inflationary monetary decisions are least damaging for output if undertaken in the periods when the difference between the expected and output neutral inflation is negative

order flow and central bank intervention an empirical analysis of recent bank of japan actions in the foreign exchange market abstract this paper examines the behaviour of end user order flows in the foreign exchange market around periods of intense and large scale intervention activity by the bank of japan first we find very limited evidence that corporate customers are more than usually likely to be net sellers of yen on days when the bank of japan is intervening to sell yen however there is somewhat stronger evidence that financial customers are more likely to be net buyers of yen on the same days second we find very clear evidence that intervention matters in a microstructure analysis the strong contemporaneous correlation between order flows and exchange rate changes essentially disappears on days in which the bank of japan intervenes

international risk sharing and economic growth international risk sharing which diversifies away income risk will reduce saving with constant relative risk aversion if growth arises from the external effects of human capital accumulation then reducing saving will reduce growth welfare also may fall with risk sharing because endogenous growth with external effects of capital accumulation typically implies a competitive equilibrium growth rate already less than the optimal growth rate we demonstrate these results in a standard representative agent economy diversifying away rate of return risk also will reduce saving and growth rates if relative risk aversion exceeds one but this diversification always increases welfare this paper studies the effects of international risk sharing portfolio diversification in a world economy in which growth rates of income are endogenous growth is based upon the spillover effects of human capital accumulation as in lucas 1988 and romer 1986 there are positive economy wide spillovers of human capital intensity on individual labour productivity in section 2 we construct a multi country growth model with an infinitely lived representative agent in each country each country faces income risk but there is no aggregate uncertainty at the world level we focus on two market structures in the first structure there are no markets which allow for international diversification of country specific income risk in the second structure there are complete international markets for risksharing with no aggregate world uncertainty this completeness allows full diversification of country specific risk the paper has two central results first growth rates in all countries are lower in the equilibrium with full diversification second in this same structure welfare of each country may be lower than in an equilibrium without risk sharing the reasoning is as follows with external effects of capital accumulation the compet

post independence india a case of finance led industrialization abstract this paper examines whether financial intermediaries have played a leading role in influencing india s economic performance after describing the evolution and functions of the financial sector we construct a set of vector autoregressive var and vector error correction models vecm to evaluate the strength and direction of the links between measures of formal intermediation and various economic aggregates the results suggest that i the financial sector was instrumental in promoting aggregate investment and output but also in the steady shift toward industry that has characterized india s development ii the operative channel was one of debt accumulation rather than improvements in total factor productivity and iii its contributions went beyond the passive support of fiscal policy

international reserves and the maturity of external debt abstract this paper studies how the level of international reserves affects the maturity structure of external debt we show in an illustrative theoretical model that reserves lengthen the maturity of external debt via a flattening of the yield curve using data of 66 emerging and developing countries and applying different econometric approaches we find robust evidence that reserves increase the share of long term in total external debt results hold for private and public external debt individually taking reserves and their effect on the debt maturity structure together they reinforce financial stability

what is happening to the impact of financial deepening on economic growth i introduction among the strongest elements of the modern economists canon is that financial sector development has a significant impact on economic growth a generation ago economists like goldsmith 1969 1 and mckinnon 1973 began to draw attention to the benefits of financial structure development and financial liberalization by the early 1990s mckinnon 1991 12 could write with confidence that now however there is widespread agreement that flows of saving and investment should be voluntary and significantly decentralized in an open capital market at close to equilibrium interest rates since the 1990s a burgeoning empirical literature has illustrated the importance of financial sector development for economic growth despite the growing consensus however we find that the link between finance and growth in cross country panel data has weakened considerably over time at the very time that financial sector liberalization spread around the world the influence of financial sector development on economic growth has diminished the seminal empirical work that established the growth finance link is king and levine 1993 which extended the cross country framework introduced in barro 1991 by adding financial variables such as the ratios of liquid liabilities or claims on the private sector to gross domestic product gdp to the standard growth regression they found a robust positive and statistically significant relationship between initial financial conditions and subsequent growth in real per capita incomes for a cross section of about 80 countries in the subsequent decade numerous empirical studies expanded upon this using both cross country and panel data sets for the post 1960 period 2 in this paper we reexamine the core cross country panel result and find that the impact of financial deepening on growth is not as strong with more recent data as it appeared in the original panel studies with data for the period from 1960 to 1989 we consider various explanations for this clear shift first we suggest that financial deepening has a positive effect on growth if not done to excess rapid and excessive deepening as manifested in a credit boom can be problematic even in the most developed markets because it can both weaken the banking system and bring inflationary pressures we test this hypothesis by looking at the finance growth nexus among countries that have or have not experienced financial sector crises we find that once crisis episodes are removed the finance growth relationship remains intact its weakening over time thus seems to be a result of an increased incidence of crises in later years our second and related hypothesis is that the widespread liberalization of financial markets that occurred in the late 1980s and early 1990s made financial deepening less effective this is reminiscent of robert lucas s 1975 critique of econometric policy evaluation advanced three decades ago policies that have promoted and or forced increases in financial depth over the past two decades may have altered the basic structural relationship between finance and growth this could occur if the observed benefits of financial deepening led many countries to liberalize before the associated legal and regulatory institutions were sufficiently well developed as a consequence the impact of financial deepening on growth would become smaller our evidence does not indicate that recent liberalizations are responsible for the breakdown of the finance growth link however there may be an indirect link as premature financial development can lead to financial crises that have real effects third we examine the role of global equity markets that have grown in importance and prominence in the years over which the finance growth relationship disappeared however we do not find any evidence to suggest that equity market growth has substituted for the role of credit markets and banks in particular

central bank intervention and exchange rate volatility abstract this paper explores the effects of foreign exchange intervention by central banks on the behavior of exchange rates the g 3 central banks have undertaken an unprecedented number of both coordinated and unilateral intervention operations in the last 10 years existing empirical evidence on the effectiveness of intervention is mixed studies using data from the 1970s suggest that intervention operations that do not affect the monetary base have at most a short lived influence on exchange rates but more recent studies indicate that the intervention operations that followed the plaza agreement influenced both the level and variance of exchange rates this paper examines the effects of us german and japanese monetary and intervention policies on dollar mark and dollar yen exchange rate volatility over the 1977 1994 period the results indicate that intervention operations generally increase exchange rate volatility this is particularly true of secret interventions which are those undertaken by central banks without notification of the public overt interventions in the mid 1980s appear to have reduced exchange rate volatility but in other periods and for the 1977 1994 period as a whole central bank intervention is associated with greater exchange rate volatility

financially constrained entry in a game with incomplete information in an earlier paper we presented an entry game with a monopolist and a potential entrant facing financial constraints in which the unique perfect equilibrium involved no entry here we consider a one sided incomplete information variant of the game in which the monopolist allows for the possibility that the entrant is committed to endure a price war to the limit of his capability we find a unique sequentially perfect equilibrium in which entry sometimes occurs when it does predatory price wars may result with the incumbent sometimes driving out the entrant but other times eventually abandoning the fight

the effect of intervention frequency on the foreign exchange market the japanese experience abstract this paper examines the effects of the frequency of foreign exchange intervention on exchange rate volatility japanese intervention is characterized by differences in the frequency of intervention there are high and low frequency intervention periods using the garch methodology this paper models the changes in the yen dollar exchange rate with the frequency of intervention from april 1991 to december 2005 as the focal explanatory variable the empirical results show that high frequency intervention stabilizes the exchange rate by reducing exchange rate volatility and that low frequency intervention is more effective

empirical analysis of the exchange rate channel in japan abstract this paper analyzes the significance of the exchange rate channel one of the transmission mechanisms of monetary policy it is important to evaluate this channel for japan because yen depreciation has been proposed as a policy to move the economy out of a liquidity trap our results suggest that in the past monetary expansion resulted in yen depreciation in the long and short run however there is no evidence to support the view that yen depreciation facilitated economic growth therefore we conclude that use of the exchange rate as a mechanism to boost the real economy was in our sample period at least premature

does one size fit all a reexamination of the finance and growth relationship abstract recent research has found a strong positive effect of a country s financial development on economic growth we propose that this relationship may vary according to the level of financial development divided in three regions in the low region countries with very low levels of financial development additional improvements in financial markets have an uncertain effect on growth in the intermediate region financial development has a large positive effect on growth finally in the high region the effect is positive but smaller we examine a panel of 74 countries using generalized method of moments gmm dynamic panel techniques and find support for the different regions

financial liberalization financial sector development and growth evidence from malaysia abstract the objective of this paper is to examine whether financial development leads to economic growth or vice versa in the small open economy of malaysia using time series data from 1960 to 2001 we conduct cointegration and causality tests to assess the finance growth link by taking the real interest rate and financial repression into account the empirical evidence suggests that financial liberalization through removing the repressionist policies has a favorable effect in stimulating financial sector development financial depth and economic development are positively related but contrary to the conventional findings our results support robinson s view that output growth leads to higher financial depth in the long run

financial development and economic growth views and agenda this critique argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive first order relationship between financial development and economic growth the body of work would push even most skeptics toward the belief that the development of financial markets and institutions is a critical and inextricable part of the growth process and away from the view that the financial system is an inconsequential sideshow responding passively to economic growth many gaps remain however and the paper highlights areas in acute need of additional research

thresholds of financial development in the euro area we analyse the dynamics of financial development and economic growth in the euro area as these countries went through considerably higher levels of financial development using a balanced panel data of 38 years from 1980 to 2018 we offer new evidence on the finance growth nexus we show the presence of non linearity as there is an inverted u shaped relationship between finance and growth in the long run estimating the thresholds in the finance growth nexus we notice a threshold effect at 74 86 of gdp for domestic credit 51 of gdp for stock turnover ratio and 65 of gdp for stock market capitalisation we notice that exceeding the threshold causes deceleration in economic growth as too much finance results in crowding out effect for productive economic activities the panel granger causality test results show that financial development should be associated with optimal growth performance these findings in the euro area provide some useful policy implications to the emerging and developing economies in designing their financial development strategies