Financial Development, Interest Rate Liberalization, and Macroeconomic Volatility

Gongyan Yang and Hongzhong Liu

Emerging Markets Finance and Trade, 2016, vol. 52, issue 4, 991-1001

Abstract: This article examines the relationship between financial development, interest rate liberalization, and macroeconomic volatility in fifty-six emerging and developed economies over the period 1980–2009. We find that financial development plays a significant role in dampening the volatility of macroeconomic growth rate, but up to a limit. The more the interest rate is liberalized, the more likely that financial development can stabilize the economy. Particularly, interest rate liberalization has a more positive influence on emerging and developing countries. Financial development and interest rate liberalization can also alleviate the influence of external shocks. They mutually enhance their functions as economic stabilizers.

Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:52:y:2016:i:4:p:991-1001

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DOI: 10.1080/1540496X.2015.1115294

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