Cyclical macroeconomic policy, financial regulation and economic growth

Philippe Aghion and Enisse Kharroubi

No 434, BIS Working Papers from Bank for International Settlements

Abstract: This paper investigates the effect of cyclical macroeconomic policy and financial sector characteristics on growth. Using cross-country, cross-industry OECD data, it yields two main findings. First, countercyclical fiscal and monetary policies foster growth disproportionately in more credit/liquidity-constrained industries. Second, while higher bank capital ratios may contribute to reducing the benefit of a countercyclical monetary policy, countercyclical credit enhances growth disproportionately in more credit/liquidity-constrained industries and this complements the growth effects of countercyclical monetary policy. Raising regulatory requirements for bank capital can therefore help achieve financial stability and preserve economic growth if complemented with more countercyclical macroeconomic and regulatory policy.

Keywords: Growth; financial constraints; fiscal policy; monetary policy; financial regulation (search for similar items in EconPapers)
Pages: 42 pages
Date: 2013-12
New Economics Papers: this item is included in nep-cba, nep-gro and nep-mac
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Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:434

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