The Domestic and International Effects of Financial Deregulation

Viktors Stebunovs and Fabio Ghironi

No 676, 2008 Meeting Papers from Society for Economic Dynamics

Abstract: This paper studies the domestic and international effects of financial deregulation in a dynamic, stochastic, general equilibrium model with endogenous producer entry. We model deregulation as a decrease in the monopoly power of financial intermediaries. We show that the economy that deregulates experiences producer entry, real exchange rate appreciation, and a current account deficit. The rest of the world experiences a long-run increase in consumption and an expansion in the number of domestic producers. Less monopoly power in financial intermediation results in less volatile business creation, reduced markup countercyclicality, and weaker substitution effects in labor supply in response to productivity shocks. Financial deregulation thus contributes to a moderation of firm-level and aggregate output volatility. In turn, trade and financial ties between the two countries allow the foreign economy to enjoy lower volatility as well. The results of the model are consistent with features of U.S. and international data following the U.S. banking deregulation started in 1977.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2008/paper_676.pdf (application/pdf)

Related works:
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:red:sed008:676

Access Statistics for this paper

More papers in 2008 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().