CAPITAL MARKET AND BUSINESS CYCLE VOLATILITY

Piyapas Tharavanij

No 33-07, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: This paper investigates cross-country evidence on how capital markets affect business cycle volatilities. In contrast to the large and growing literature of finance and growth, empirical work on the relationship between finance, particularly capital markets, and volatility has been relatively scarce, though theoretically, more developed capital markets should lead to lower macroeconomic volatilities. Results are generated using panel estimation technique with data from 44 countries covering the years 1975 through 2004. The major finding is that countries with more developed capital markets have smoother economic fluctuations. The results hold under various estimation methods and after controlling for other relevant variables, country specific effects, and plausible endogeneity problems.

Keywords: business cycle; capital market; financial development; financial structure; panel data; market-based; bank-based (search for similar items in EconPapers)
JEL-codes: C33 E32 E44 G00 G21 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2007
New Economics Papers: this item is included in nep-bec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Capital Market and Business Cycle Volatility (2007)
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