Can financial innovation help to explain the reduced volatility of economic activity?

Karen E. Dynan, Douglas Elmendorf and Daniel Sichel ()

No 2005-54, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: The stabilization of economic activity in the mid 1980s has received considerable attention. Research has focused primarily on the role played by milder economic shocks, improved inventory management, and better monetary policy. This paper explores another potential explanation: financial innovation. Examples of such innovation include developments in lending practices and loan markets that have enhanced the ability of households and firms to borrow and changes in government policy such as the demise of Regulation Q. We employ a variety of simple empirical techniques to identify links between the observed moderation in economic activity and the influence of financial innovation on consumer spending, housing investment, and business fixed investment. Our results suggest that financial innovation should be added to the list of likely contributors to the mid-1980s stabilization.

Keywords: Economic stabilization; Financial engineering; Financial modernization (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-bec, nep-fmk and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
http://www.federalreserve.gov/pubs/feds/2005/200554/200554abs.html (text/html)
http://www.federalreserve.gov/pubs/feds/2005/200554/200554pap.pdf (application/pdf)

Related works:
Journal Article: Can financial innovation help to explain the reduced volatility of economic activity? (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2005-54

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().