Financial stability and economic performance

Jerome Creel, Paul Hubert and Fabien Labondance

Economic Modelling, 2015, vol. 48, issue C, 25-40

Abstract: This paper aims at establishing the link between economic performance and financial stability in the European Union. We use the seminal framework of Beck and Levine (2004) – both in terms of variables and econometric method – to estimate this causal relationship, independently from but controlling for the level of financial depth. Using a panel GMM with instrumental variables, our contribution involves testing how different measures of financial instability (an institutional index, microeconomic indicators, and our own statistical index derived from a principal component analysis) affect economic performance (or components of aggregate dynamics like consumption, investment and disposable income). We find that financial instability has a negative effect on economic growth.

Keywords: Financial depth; Aggregate dynamics; Financial stability; Banks; Non-performing loans; CISS; Z-score; Principal component analysis (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (85)

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Related works:
Working Paper: Financial Stability and Economic Performance (2014)
Working Paper: Financial stability and economic performance (2013)
Working Paper: Financial stability and economic performance (2013)
Working Paper: Financial stability and economic performance (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:48:y:2015:i:c:p:25-40

DOI: 10.1016/j.econmod.2014.10.025

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