Excess Finance and Growth: Don't Lose Sight of Expansions !

Thomas Grjebine and Fabien Tripier

Working Papers from CEPII research center

Abstract: Accompanying the great recession, a recent empirical literature casts doubt on the existence of a positive relationship between economic and financial growth pointing out the economic costs of excessive financial growth. We show however that if one considers the complete growth cycle, that is by including expansions into a growth cycle accounting procedure, the elasticity between financial and economic growth rates is positive for most financial series, even if high financial growth makes recessions more severe. This elasticity should be however adjusted downward, and may even turn negative, if one considers the persistent effects of financial growth on the expansion of the subsequent cycle. This effect can explain the pattern of economic growth observed during and after financial bubbles.

Keywords: Growth; Business Cycles; Finance; Financial Cycles; Bubbles (search for similar items in EconPapers)
JEL-codes: E32 E44 (search for similar items in EconPapers)
Date: 2015-12
New Economics Papers: this item is included in nep-fdg and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:cii:cepidt:2015-31

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