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Episodes of financial deepening: credit booms or growth generators?

Peter Rousseau and Paul Wachtel

No 17-00009, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: One strand of the economics literature addresses financial deepening as a precursor to economic growth. Another views it as a cause of financial crises. We examine historical data for 17 economies from 1870 to 1929 to distinguish episodes of growth induced by financial deepening from crises induced by credit booms. Cross-country panel regressions with five-year averages indicate that deepening episodes, defined as increases of more than thirty percent (and alternatively more than twenty percentage points) in the ratio of M2 to GDP over a ten year period, significantly enhanced the standard finance-growth dynamic, while deepening associated with financial crises sharply hindered it. We then describe some specific episodes of financial deepening in our sample.

Keywords: finance-growth nexus; Atlantic economies; financial deepening; financial crisis (search for similar items in EconPapers)
JEL-codes: E5 N1 (search for similar items in EconPapers)
Date: 2017-06-16
New Economics Papers: this item is included in nep-ban, nep-fdg, nep-his and nep-mac
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Related works:
Working Paper: Episodes of financial deepening: credit booms or growth generators? (2016) Downloads
Working Paper: Episodes of Financial Deepening: Credit Booms or Growth Generators? (2015) Downloads
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