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Financial Development, Financial Fragility, and Growth

Norman Loayza () and Romain Ranciere

No 2005/170, IMF Working Papers from International Monetary Fund

Abstract: This paper studies the apparent contradictions between two strands of the literature on the effects of financial intermediation on economic activity. On the one hand, the empirical growth literature finds a positive effect of financial depth as measured by, for instance, private domestic credit and liquid liabilities. On the other hand, the banking and currency crisis literature finds that monetary aggregates, such as domestic credit, are among the best predictors of crises and their related economic downturns. This paper accounts for these contrasting effects based on the distinction between the short- and long-run effects of financial intermediation.

Keywords: WP; economic growth; short-run coefficient; regression equation; growth rate; Growth empirics; banking crisis; pooled mean group estimation; error correction coefficient; PMG estimator; error-correction coefficient; estimation result; Systemic crises; Banking crises; Financial sector development; Production growth (search for similar items in EconPapers)
Pages: 32
Date: 2005-08-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (43)

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http://www.imf.org/external/pubs/cat/longres.aspx?sk=18442 (application/pdf)

Related works:
Journal Article: Financial Development, Financial Fragility, and Growth (2006) Downloads
Working Paper: Financial Development, Financial Fragility, and Growth (2006)
Working Paper: Financial Development, Financial Fragility and Growth (2004) Downloads
Working Paper: Financial development, financial fragility and growth (2004) Downloads
Working Paper: Financial development, financial fragility, and growth (2004) Downloads
Working Paper: Financial Development, Financial Fragility, and Growth (2002) Downloads
Working Paper: Financial Development, Financial Fragility, and Growth (2002) Downloads
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