NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Financial Sector Ups and Downs and the Real Sector: Up by the stairs, down by the parachute

Joshua Aizenman, Brian Pinto, Vladyslav Sushko

NBER Working Paper No. 17530
Issued in October 2011
NBER Program(s):   IFM   ITI

We examine how financial expansion and contraction cycles affect the broader economy through their impact on real economic sectors in a panel of countries over 1960–2005. Periods of accelerated growth of the financial sector are more likely to be followed by abrupt financial contractions than are periods of slower financial sector growth. Sharp fluctuations in the financial sector have strongly asymmetric effects, with the majority of real sectors adversely affected by contractions, but not helped by expansions. The adverse effects of financial contractions are transmitted almost exclusively through the financial openness channel, with precautionary foreign exchange reserve holdings serving as a key buffer.

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This paper was revised on November 28, 2012

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w17530

Published: "Financial Sector Ups and Downs and the Real Sector: Up by the Stairs and Down by the Parachute," (with B. Pinto and V. Sushko), Emerging Markets Review, 2013, 16, pp 1-30.

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