Stress-ridden finance and growth losses: does financial development break the link?

Matias Ossandon Busch, Manuel Ramos-Francia, Ricardo Montañez (), Serafín Martínez-Jaramillo, José Manuel Sánchez-Martínez and Anahí Rodríguez-Martínez
Additional contact information
Manuel Ramos-Francia: CEMLA
Ricardo Montañez: CEMLA
Serafín Martínez-Jaramillo: Banco de Mexico
José Manuel Sánchez-Martínez: McGill University

No 01/2023, CEMLA Working Paper Series from CEMLA

Abstract: Does financial development shield countries from the pass-through of financial shocks to real outcomes? We evaluate this question by characterizing the probability density of expected GDP growth conditional on financial stress indicators in a panel of 28 countries. Our robust results unveil a non-linear nexus between financial stress and expected GDP growth, depending on countries' degree of financial development. While both domestic and global financial factors affect expected growth, the effect of global stress factors is moderated by financial development. This result highlights a previously unexplored channel trough which financial development can break the link between financial (in)stability and GDP growth.

Keywords: economic growth; financial stability; financial development; capital flows; growth at risk. (search for similar items in EconPapers)
JEL-codes: G01 G15 O16 O43 (search for similar items in EconPapers)
Pages: 54
Date: 2023-01
New Economics Papers: this item is included in nep-ban
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Working Paper: Stress-ridden finance and growth losses: Does financial development break the link? (2022)
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