Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/80801
Authors: 
Pinheiro, Tiago
Rivadeneyra, Francisco
Teignier, Marc
Year of Publication: 
2013
Series/Report no.: 
Bank of Canada Working Paper 2013-4
Abstract: 
This paper presents a general equilibrium model with endogenous collateral constraints to study the relationship between financial development and business cycle fluctuations in a cross-section of economies with different sizes of their financial sector. The financial sector can amplify or dampen the volatility of income by increasing or reducing the business cycle effects of technological shocks. We find a non-monotonic relationship between the volatility of income and financial development measured by total borrowing and lending. A more developed financial system unambiguously increases the income level however the volatility can rise or fall depending on the degree of financial development.
Subjects: 
Credit and credit aggregates
Financial stability
JEL: 
E32
E60
Document Type: 
Working Paper

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