Financial Stability and Economic Performance

Jerome Creel, Paul Hubert and Fabien Labondance

Working papers from Financialisation, Economy, Society & Sustainable Development (FESSUD) Project

Abstract: This paper aims at establishing the link between economic performance and financial stability in the European Union. We use the seminal framework – both in terms of variables and econometric method – of Beck and Levine (2004) to estimate this causal relationship, independently from but controlling for the level of financial depth. Using a panel GMM with instrumental variables, our contribution is to test how different measures of financial instability (an institutional index, microeconomic indicators, and our own statistical index derived from a Principal Component Analysis) affect economic performance (or components of aggregate dynamics like consumption, investment or disposable income). We find that financial instability has a negative effect on economic growth.

Keywords: Financial depth; Aggregate dynamics; Financial stability, Banks, Non-performing loans, CISS, Z-score, Principal Component Analysis (search for similar items in EconPapers)
JEL-codes: G10 G21 O40 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2014-07-15
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Financial stability and economic performance (2015)
Working Paper: Financial stability and economic performance (2013)
Working Paper: Financial stability and economic performance (2013)
Working Paper: Financial stability and economic performance (2013)
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