Stress-ridden finance and growth losses: Does financial development break the link?

Does financial development shield countries from the pass-through of financial shocks to real outcomes? We evaluate this question by characterising the probability density of expected GDP growth conditional on financial stability indicators in a panel of 28 countries. Our robust results unveil a non...

Full description

Saved in:
Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Authors Martínez-Jaramillo, Serafín, Montañez-Enríquez, Ricardo, Ossandon Busch, Matias, Ramos-Francia, Manuel, Rodríguez-Martínez, Anahí, Sánchez-Martínez, Manuel
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2022
Subjects
GDP
Gross Domestic Product
International finance
Online AccessGet full text

Cover

More Information
Summary:Does financial development shield countries from the pass-through of financial shocks to real outcomes? We evaluate this question by characterising the probability density of expected GDP growth conditional on financial stability indicators in a panel of 28 countries. Our robust results unveil a non-linear nexus between financial stability and expected GDP growth, depending on countries' degree of financial development. While both domestic and global financial factors affect expected growth, the effect of global factors is moderated by financial development. This result highlights a previously unexplored channel trough which financial development can break the link between financial (in)stability and GDP growth.