Finance and Macroeconomic Volatility

29 Pages Posted: 5 Oct 2000

See all articles by Cevdet Denizer

Cevdet Denizer

Center for Economics and Econometrics; World Bank

Murat Iyigun

University of Colorado at Boulder - Department of Economics; Harvard University - Center for International Development (CID); IZA Institute of Labor Economics

Ann L. Owen

Hamilton College - Economics Department

Date Written: June 2000

Abstract

Countries with more developed financial sectors experience fewer fluctuations in real per capita output, consumption, and investment growth. But it matters how the financial sector develops: the proportion of credit provided to the private sector is important in explaining volatility.

Countries with more developed financial sectors experience fewer fluctuations in real per capita output, consumption, and investment growth. But the manner in which the financial sector develops matters.

The relative importance of banks in the financial system is important in explaining consumption and investment volatility. The proportion of credit provided to the private sector best explains volatility of consumption and output.

Denizer, Iyigun, and Owen generate their main results using fixed-effects estimation with panel data from 70 countries for the years 1956-98.

Their general findings suggest that the risk management and information processing provided by banks may be especially important in reducing consumption and investment volatility. The simple availability of credit to the private sector probably helps smooth consumption and GDP.

This paper - a product of the Poverty Reduction and Economic Management Sector Unit, Europe and Central Asia Region - is part of a larger effort in the region to understand the links between finance and macroeconomic volatility. The authors may be contacted at cdenizer@worldbank.org, murat.iyigun@frb.gov, or aowen@hamilton.edu.

JEL Classification: D31, E32

Suggested Citation

Denizer, Cevdet and Iyigun, Murat F. and Owen, Ann L., Finance and Macroeconomic Volatility (June 2000). International Finance Working Paper No. 670; World Bank Policy Research Paper No. 2487. Available at SSRN: https://ssrn.com/abstract=236018

Cevdet Denizer (Contact Author)

Center for Economics and Econometrics ( email )

United States
+902123596505 (Phone)
+902122872453 (Fax)

HOME PAGE: http://www.cee.boun.edu.tr

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Murat F. Iyigun

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States
303-492-6653 (Phone)
303-492-8622 (Fax)

Harvard University - Center for International Development (CID) ( email )

One Eliot Street Building
79 JFK Street
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Ann L. Owen

Hamilton College - Economics Department ( email )

198 College Hill Road
Clinton, NY 13323
United States
315-859-4419 (Phone)
303-859-4477 (Fax)

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