The role of macroeconomic stability in the finance-growth nexus. Threshold regression approach

Salvatore Perri

STUDI ECONOMICI, 2013, vol. 2013/110, issue 110, 57-81

Abstract: In this paper we analyse the link between Finance and Growth and, in particular, if this link is variable in respect to changes in the "Macroeconomic Stability". This topic was studied by many authors without any definite conclusion being reached. This paper considers the theoretical and the empirical problem in two ways: first, the evolution of the empirical literature, and a new empirical perspective to analyze that link. The research presented here attempts to answer this question using threshold methodology. It confirms previous analysis in respect to non-linearity of the relationship between finance and growth in international comparisons. The use of two different threshold variables confirms the complexity of this link and also the different mechanisms of transmission that operate inside different groups of countries. The use of the bank?s liquidity reserve ratio as a "stability" indicator suggests that probably the link between wealth and stability is not always enjoyed.

JEL-codes: E44 G00 O16 (search for similar items in EconPapers)
Date: 2013
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