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An Empirical Study on the Effects of Financial Deleveraging on Economic Growth and Fluctuations

【Authors】
PAN Min, YUAN Gecheng
【WorkUnit】
Wuhan University, 430072
【Abstract】

Financial deleveraging will affect economic growth and economic fluctuations, and the changes of financial structure and financial development may influence the relationship between financial deleveraging and micro-economy. Based on the GMM estimation method and using the panel data of 97 countries and regions from 1980 to 2015 as samples, this paper examines the effects of financial deleveraging on economic growth and fluctuations, as well as the impacts of financial structure and financial development on the relationship between financial deleveraging and micro-economy. It shows that financial deleveraging has a negative impact on economic growth and will increase economic fluctuations. The development of direct finance represented by capital market will weaken the effects of financial deleveraging on economic growth and fluctuations. However, the changes of financial structure and the development of indirect finance represented by financial intermediary have no significant influence on the relationship between financial deleveraging and micro-economy. The results implicate that, in the context of deleveraging process, controllable and progressive measures should be taken in order to avoid systemic risks. At the same time, the policy authority should accelerate the development of capital market in order to weaken the adverse effects of financial deleveraging on economic growth and fluctuations. 

 

JEL:G10, G20

【KeyWords】
Financial Deleveraging, Financial Development, Economic Growth, Economic Fluctuations