Stress-ridden finance and growth losses: Does financial development break the link?

Serafín Martínez-Jaramillo, Ricardo Montañez-Enríquez, Matias Ossandon Busch, Manuel Ramos-Francia, Anahí Rodríguez-Martínez and Manuel Sánchez-Martínez
Authors registered in the RePEc Author Service: Manuel Ramos Francia

No 3/2022, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: Does financial development shield countries from the pass-through of financial shocks to real outcomes? We evaluate this question by characterising the probability density of expected GDP growth conditional on financial stability indicators in a panel of 28 countries. Our robust results unveil a non-linear nexus between financial stability and expected GDP growth, depending on countries' degree of financial development. While both domestic and global financial factors affect expected growth, the effect of global factors is moderated by financial development. This result highlights a previously unexplored channel trough which financial development can break the link between financial (in)stability and GDP growth.

Keywords: economic growth; financial development; financial stability; growth at risk (search for similar items in EconPapers)
JEL-codes: G15 O1 O16 O43 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-ban and nep-fdg
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Working Paper: Stress-ridden finance and growth losses: does financial development break the link? (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwhdps:32022

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