Growth, Saving, Financial Markets, and Markov Switching Regimes

Jacobson Tor, Thomas Lindh and Anders Warne
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Jacobson Tor: Sveriges Riksbank

Studies in Nonlinear Dynamics & Econometrics, 2002, vol. 5, issue 4, 20

Abstract: We report evidence that the relation between the financial-sector share, private saving, and growth in the United States in 1948-96 is characterized by several regime shifts. The finding is based on vector autoregressions on quarterly data that allow for Markov switching regimes. The evidence may be interpreted as support for a hypothesis that the relation between financial development and growth evolves in a stepwise fashion. Theoretical models in which structural financial developments entail fixed costs imply such stepwise patterns. The estimated variable relations are roughly consistent with the patterns to be expected from such models, although our data do not admit definite conclusions. The timing of the shifts coincides with changes in regulation and in the financial-market structure.

Keywords: growth; Markov switching; saving; structural financial development; vector autoregression. (search for similar items in EconPapers)
Date: 2002
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Working Paper: Growth, Savings, Financial Markets and Markov Switching Regimes (1998)
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DOI: 10.2202/1558-3708.1081

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