Hidden Bibliographic Details
| Other authors / contributors: | Srivisal, Narapong, author.
International Monetary Fund. Strategy, Policy, and Review Department.
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| ISBN: | 9781475548259
1475548257
9781475550825
1475550820
9781475543988
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| Notes: | Title from PDF title page (IMF Web site, viewed March 19, 2013).
At head of title: "Strategy, Policy, and Review Department."
"January 2013."
Includes bibliographical references.
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| Summary: | This paper examines the impact of financial depth on macroeconomic volatility using a dynamic panel analysis for 110 advanced and developing countries. We find that financial depth plays a significant role in dampening the volatility of output, consumption, and investment growth, but only up to a certain point. At very high levels, such as those observed in many advanced economies, financial depth amplifies consumption and investment volatility. We also find strong evidence that deeper financial systems serve as shock absorbers, mitigating the negative effects of real external shocks on macroeconomic volatility. This smoothing effect is particularly pronounced for consumption volatility in environments of high exposure - when trade and financial openness are high - suggesting significant gains from further financial deepening in developing countries.
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