Hirano, Tomohiro (2009): Financial Development and Amplification.
Download (185kB) | Preview
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:||31. Mar 2010 05:29|
|Last Modified:||30. Dec 2015 10:09|
Aghion, Philippe, Abhijit Banerjee, Thomas Piketty. (1999) "Dualism and Macroeconomic Volatility." The Quarteryly Journal of Economics, 114, 1359-97.
Bernanke, Ben, and Mark Gertler. (1989) "Agency Costs, Net Worth, and Business Fluctuations." American Economic Review, 79, 14--31.
Bernanke, Ben, Mark Gerlter, and Simon Gilchrist. (1996) "The Financial Accelerator and the Flight to Quality." Review of Economics and Statistics, 78, 1-15.
Bernanke, Ben, Mark Gerlter, and Simon Gilchrist. (1999) "The Financial Accelerator in a Quantitative Business Cycle Framework," In the Handbook of Macroeconomics, edited by John B. Taylor and Michael Woodford, Amsterdam, North-Holland.
Castro, Rui, Gian Clementi, and Glenn MacDonald. (2004) "Investor Protection, Optimal Incentives, and Economic Growth." Quarterly Journal of Economics, 119, 1131-75.
Ceccehtti, Stephen G., Alfonso Flores-Lagunes, and Stefan Krause. (2006) "Assessing the Sources of Changes in the Volatility of Real Growth." NBER Working Paper, No. 11946.
Cooley, Thomas, F., Raman Marimon, and Vincenzo Quadrini "Aggregate Consequences of Limited Contracts Enforceability." Journal of Political Economy, 111, 424-46.
Cordoba, Juan-Carlos, and Marla Ripoll. (2004) "Credit Cycles Redux." International Economic Review, 45, 1011-46.
Dynan, Karen E., Douglas W. Elmendorf, Daniel E. Sichel. (2006) "Can financial innovation help to explain the reduced volatility of economic activity?." Journal of Monetary Economics, 53, 123-50.
Easterly, William, Roumeen Islam, and Joseph Stiglitz. (2000) "Shaken and Stirred: Explaining Growth Volatility." In Annual Bank Conference on Development Economics 2000, edited by Boris Pleskovic and Nicholas Stern, Washington, DC: The World Bank.
Hart, Olivier D., and John Moore. (1994) "A Theory of Debt Based on the Inalienability of Human Capital." Quarterly Journal of Economics, 109, 841--79.
Holmstrom, Bengt, and Jean Tirole. (1997) "Financial Intermediation, Loanable Funds, and the Real Sector." Quarterly Journal of Economics, 112, 663-91.
International Monetary Fund. (2006) World Economic Outlook, Financial System and Economic Cycles, Washington, September.
International Monetary Fund. (2008) World Economic Outlook, Financial Stress, Downturns, and Recoveries, Washington, October.
Jermann, Urban, and Vincenzo Quadrini. (2008) "Financial Innovations and Macroeconomic Volatility." NBER Working Papers, No. 12308.
Khan, Aubihk, and B. Ravikumar. (2001) "Growth and Risk-Sharing with Private Information." Journal of Monetary Economics, 47, 499-521.
Kiyotaki, Nobuhiro, and John Moore. (1997) "Credit Cycles." Journal of Political Economy, 105, 211--48.
Kiyotaki, Nobuhiro. (1998) "Credit and Business Cycles." The Japanese Economic Review, 49, 18--35.
Kocherlakota, Narayana R., (2000) "Creating Business Cycles Through Credit Constraints." Quarterly Review, Federal Reserve Bank of Minneapolis.
Kunieda, Takuma. (2008) "Financial Development and Volatility of Growth Rates: New Evidence." mimeo
Levine, Ross. (1997) "Financial Development and Economic Growth: Views and Agenda." Journal of Economic Literature, 35, 688-726.
Levine, Ross, Norman Loyaza, and Thorsten Beck. (2000) "Financial Intermediation and Growth: Causality and Causes." Journal of Monetary Economics, 46, 31-77.
Matsuyama, Kiminori. (2007) "Credit Traps and Credit Cycles." American Economic Review, 97, 503-16.
Matsuyama, Kiminori. (2008) "Aggregate Implications of Credit Market Imperfections." In NBER Macroeconomics Annual 2007, edited by Daron Acemoglu, Kenneth Rogoff, and
Michael Woodford, Chicago. IL: University of Chicago Press. Rajan, Raghuram G., (2006) "Has Financial Development Made the World Riskier?." European Financial Management, 12, 499-533.
Romer, Paul. (1986) "Increasing returns and long-run growth." Journal of Political Economy, 94, 1002-37.
Shin, Hyun Song. (2009) "Securitization and Financial Stability." Economic Journal, 119, 309 - 32.
Stiglitz, Joseph, and Andrew Weiss. (1981) "Credit Rationing in Markets with Imperfect Information." American Economic Review, 71, 393-410.
Tirole, Jean. (2005) The Theory of Corporate Finance, Princeton, NJ: Princeton University Press.
Available Versions of this Item
Financial Development and Amplification. (deposited 23. Aug 2009 06:43)
- Financial Development and Amplification. (deposited 31. Mar 2010 05:29) [Currently Displayed]