Financial intermediary development and growth volatility: do intermediaries dampen or magnify shocks?

By Thorsten Beck, Mattias Lundberg, G. Majnoni. 2001

269 citations recorded by the source corpus.

The authors extend the recent literature on the link between financial development and economic volatility by focusing on the channels through which the development of financial intermediaries affects economic volatility. Their theoretical model predicts that well-developed financial intermediaries dampen the effect of real sector shocks on the volatility of growth while magnifying the effect of monetary shocks-suggesting that, overall, financial intermediaries have no unambiguous effect on growth volatility. The authors test these predictions in a panel data set covering 63 countries over the period 1960-97, using the volatility of terms of trade to proxy for real volatility, and the volatility of inflation to proxy for monetary volatility. They find no robust relationship between the development of financial intermediaries and growth volatility, weak evidence that financial intermediaries dampen the effect of terms of trade volatility, and evidence that financial intermediaries magnify the impact of inflation volatility in low- and middle-income countries.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/722f2cd7f6aca7885c8adb0beb6a6a75fc380c31

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Citations in the corpus

Revisiting the Link between Finance and Macroeconomic Volatility (2013, unknown): “Beck et al. (2006), find weak evidence that financial intermediaries dampen the effect of terms of trade shocks on output volatility, while Loayza and Raddatz (2007) find that domestic financial depth plays a role in stabilizing more open economies.”
Banking stability, competition, and economic volatility (2016, methodology): “Our paper is closely related to Beck et al. (2006) but we directly analyze the impact of banking stability on economic volatility and use industry data.”
Liquidity Needs and Vulnerability to Financial Underdevelopment (2003, methodology): “The main disadvantage of this measure is that it does not contain information about the level of activity of stock markets.25 The data of the stock market capitalization was also extracted from Beck et al. (2001a).”
Financial Sector Development, Economic Growth, and Poverty Reduction: A Literature Review (2009, background): “…show that more financially developed countries are able to avoid currency crises based on quarterly data for 39 countries over 1981 to 2000.16 Beck, Lundberg, and Majnoni (2006) examine whether well-developed financial intermediaries dampen the effect of real sector shocks and magnify the…”
Financial Globalization and Economic Policies (2009, unknown): “For evidence on the first point, see Stulz (1999a, 1999b), Bekaert and Harvey (2000), Henry (2000a), and Kim and Singal (2000).”
Financial Globalization: A Reappraisal (2009, unknown): “47 See Easterly, Islam, and Stiglitz (2001); Beck, Lundberg, and Majnoni (2001); Denizer, Iyigun, and Owen (2002); and Larrain (2004).”
Finance and Employment (2012, unknown): “The question remains as to whether and when these costs more than offset the benefits of higher employment and/or wages, so that society may want to ‘throw sand in the wheels of capitalism’, as in Bersem et al. (2010). The answer also depends on whether one can devise systems by which the gains of t”
The Geography of Output Volatility (2009, unknown): “[14] Beck, T.”
Nonlinearities in financial development–economic growth nexus: Evidence from sub-Saharan Africa (2017, background): “Financial intermediary development and growth volatility: Do intermediaries dampen or magnify shocks? Journal of International Money Finance, 25 (7), 11461167.”