Capital Market and Business Cycle Volatility

Tharavanij, Piyapas (2007): Capital Market and Business Cycle Volatility.

Abstract

This paper investigates cross-country evidence on how capital market affects business cycle volatility. In contrast to the large and growing literature on the impact of finance and growth, empirical work on the relationship between finance and volatility has been relatively scarce. Theoretically, more developed capital market should lead to lower macroeconomic volatility. The major finding is that countries with more developed capital market have smoother economic fluctuations. Results are generated using panel estimation technique with panel data from 44 countries covering the years 1975 through 2004.

• Item Type: MPRA Paper
• Institution: Monash University, Dept. of Economics
• Language: English
• Keywords: business cycle; capital market; financial development; financial structure; panel data; market-based; bank-based
• Subjects: G - Financial Economics > G0 - General > G00 - General; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models

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