Finance and Growth Cycles

Takuma Kunieda

MPRA Paper from University Library of Munich, Germany

Abstract: This research examines the effect of financial development on volatility in economic growth. It demonstrates theoretically that financial development has a hump-shaped effect on volatility in economic growth. In early stages of the development of a financial sector, growth rates evolve monotonically. At the intermediate level of financial development, as the degree of credit market imperfections diminishes and as asymmetric information between borrowers and lenders is less pronounced, an economy exhibits endogenous growth cycles. However, as the financial sector matures, the volatility in the growth process dissipates and the growth rates evolve once again monotonically.

Keywords: Endogenous Growth Cycles; Financial Deepening; Credit market imperfections; Heterogeneous agents (search for similar items in EconPapers)
JEL-codes: E22 E23 O41 (search for similar items in EconPapers)
Date: 2008-07-12
New Economics Papers: this item is included in nep-fdg and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:11340

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