Financial Development and the Instability of Open Economies

Détails

ID Serval
serval:BIB_B36CBA6AA78A
Type
Article: article d'un périodique ou d'un magazine.
Collection
Publications
Titre
Financial Development and the Instability of Open Economies
Périodique
Journal of Monetary Economics
Auteur(s)
Aghion P., Bacchetta P., Banerjee A.
ISSN
0304-3932
Statut éditorial
Publié
Date de publication
2004
Peer-reviewed
Oui
Volume
51
Numéro
6
Pages
1077-1106
Langue
anglais
Résumé
This paper introduces a framework for analyzing the role of financial factors as a source of instability in small open economies. Our basic model is a dynamic open economy model with a tradeable good produced with capital and a country-specific factor. We also assume that firms face credit constraints, with the constraint being tighter at a lower level of financial development. A basic implication of this model is that economies at an intermediate level of financial development are more unstable than either very developed or very underdeveloped economies. This is true both in the sense that temporary shocks have large and persistent effects and also in the sense that these economies can exhibit cycles. Thus, countries that are going through a phase of financial development may become more unstable in the short run. Similarly, full capital account liberalization may destabilize the economy in economies at an intermediate level of financial development: phases of growth with capital inflows are followed by collapse with capital outflows. On the other hand, foreign direct investment does not destabilize.
Mots-clé
Financial development, Volatility, Financial liberalization
Web of science
Création de la notice
19/11/2007 11:45
Dernière modification de la notice
03/03/2018 20:40
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