Is There an Optimum Level of Financial Activity?

Michael Graff

No 05-106, KOF Working papers from KOF Swiss Economic Institute, ETH Zurich

Abstract: This paper addresses the notion of an "optimum level of financial activity" that is contingent on a country's general level of development. Referring to threshold regressions and a bootstrap test for structural shift of the finance regressor in a growth equation, it is shown that countries gain less from a given level of financial activity, if the latter fails to keep up with or exceeds what would follow from a balanced expansion path. The paper contributes to the literature on the finance-growth nexus in providing empirical support for the notion of "balanced" financial development with a development specific optimum level of financial activity.

Keywords: Optimum financial activity; Bayesian statistics; Bootstrapping (search for similar items in EconPapers)
Pages: 25 pages
Date: 2005-08
New Economics Papers: this item is included in nep-fmk
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:kof:wpskof:05-106

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