Hirano, Tomohiro (2009): Financial Development and Amplification.
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Does financial development exacerbate or dampen financial amplification? This paper develops a macroeconomic model with the borrowing constraint and heterogeneous agents to answer this question. In our framework, financial development produces two competing forces. One is the effect which accelerates amplification by strengthening balance sheet effects. The other is the effect which reduces it, we call shock cushioning effects. Whether financial development exacerbates or dampens amplification depends on the balance of two effects. We find that the relation between financial development and amplification is non-monotone: amplification initially increases with financial development and later falls down.
|Item Type:||MPRA Paper|
|Original Title:||Financial Development and Amplification|
|English Title:||Financial Development and Amplification|
|Keywords:||Non-Monotonicity, Balance sheet effects, Shock cushioning effects, the borrowing constraint, heterogeneous agents|
|Subjects:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
|Depositing User:||Tomohiro Hirano|
|Date Deposited:||07. Sep 2010 07:44|
|Last Modified:||15. Feb 2013 21:39|
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Financial Development and Amplification. (deposited 23. Aug 2009 06:43)
Financial Development and Amplification. (deposited 31. Mar 2010 05:29)
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