Cyclical Macroeconomic Policy, Financial Regulation and Economic Growth

42 Pages Posted: 27 Feb 2014

See all articles by Philippe Aghion

Philippe Aghion

College de France and London School of Economics and Political Science, Fellow; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Enisse Kharroubi

Bank for International Settlements (BIS)

Date Written: December 2013

Abstract

This paper investigates the effect of cyclical macroeconomic policy and financial sector characteristics on growth. Using cross-country, cross-industry OECD data, it yields two main findings. First, countercyclical fiscal and monetary policies foster growth disproportionately in more credit/liquidity-constrained industries. Second, while higher bank capital ratios may contribute to reducing the benefit of a countercyclical monetary policy, countercyclical credit enhances growth disproportionately in more credit/liquidity-constrained industries and this complements the growth effects of countercyclical monetary policy. Raising regulatory requirements for bank capital can therefore help achieve financial stability and preserve economic growth if complemented with more countercyclical macroeconomic and regulatory policy.

Keywords: Growth, financial constraints, fiscal policy, monetary policyfinancial regulation financial regulation

JEL Classification: E32, E44, E52, E62, G28, O43

Suggested Citation

Aghion, Philippe and Kharroubi, Enisse, Cyclical Macroeconomic Policy, Financial Regulation and Economic Growth (December 2013). BIS Working Paper No. 434. Available at SSRN: https://ssrn.com/abstract=2397681

Philippe Aghion (Contact Author)

College de France and London School of Economics and Political Science, Fellow ( email )

London
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Enisse Kharroubi

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Register to save articles to
your library

Register

Paper statistics

Downloads
77
Abstract Views
1,070
rank
312,250
PlumX Metrics