Banking and Financial Participation Reforms, Labor Markets, and Financial Shocks

Brendan Epstein and Alan Finkelstein Shapiro

MPRA Paper from University Library of Munich, Germany

Abstract: The degree of bank competition as well as firms’ and households’ participation in the domestic banking system differ considerably in emerging economies (EMEs) relative to advanced economies (AEs). We build a small-open-economy model with endogenous firm entry, monopolistic banks, household and firm heterogeneity in par- ticipation in the banking system, and labor search to analyze the labor market and aggregate consequences of financial participation and banking reforms in EMEs. We find that there is a pre-reform threshold of firm participation in the banking system below which reform implementation leads to sharper unemployment and aggregate fluctuations amid foreign interest rate and aggregate productivity shocks. Our find- ings suggest that comprehensive banking reforms that foster household participation and bank competition in tandem can reduce labor market and aggregate volatility, but only under a high-enough pre-reform level of firm participation in the banking system and a non-negligible increase in bank competition.

Keywords: Emerging economies; structural reforms; foreign interest rate shocks; business cycles; banking sector; unemployment; financial participation. (search for similar items in EconPapers)
JEL-codes: E24 E32 E44 F41 G21 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-ban, nep-dge, nep-fdg and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/88697/1/structural_reforms-3.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:88697

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().