Volatility and GrowthHardback Clarendon Lectures in Economics (Hardcover)
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- Publisher: Oxford University Press
- Format: Hardback | 160 pages
- Dimensions: 140mm x 216mm x 16mm | 322g
- Publication date: 29 September 2005
- Publication City/Country: Oxford
- ISBN 10: 0199248613
- ISBN 13: 9780199248612
- Illustrations note: numerous line drawings, tables and mathematical equations
It has long been recognized that productivity growth and the business cycle are closely interrelated. Yet, until recently, the two phenomena have been investigated separately in the economics literature. This book provides the first consistent attempt to analyze the effects of macroeconomic volatility on productivity growth, and also the reverse causality from growth to business cycles. The authors show that by looking at the economy through the lens of private entrepreneurs, who invest under credit constraints, one can go some way towards explaining persistent macroeconomic volatility and the effects of volatility on growth. Beginning with an analysis of the effects of volatility on growth, the authors argue that the lower the level of financial development in a country the more detrimental the effect of volatility on growth. This prediction is confirmed by cross-country panel regressions. The data also suggests that a fixed exchange rate regime or more countercyclical budgetary policies are growth-enhancing in countries with a lower level of financial development. The former reduce aggregate volatility whereas the latter reduce the negative effects of volatility on long-term productivity-enhancing investment by firms. The book concludes with an investigation into how the interplay between credit constraints and pecuniary externalities is sufficient to generate persistent business cycles and to explain the occurrence of currency crises.
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Abhijit Banerjee is the Ford Foundation Professor of Economics in the Department of Economics at Massachusetts Institute of Technology, the Director of the Poverty Action Lab and the past President of the Bureau for Research in Economic Analysis and Development (BREAD). He received his Ph.D. in economics from Harvard University, and has taught at Princeton and Harvard before joining the MIT faculty in 1996.
Table of contents
Introduction ; 0. Modeling Credit Markets ; 1. Volatility and Growth: AK versus Schumpeterian Approach ; 2. Financial Development and the Effects of Growth on Volatility ; 3. Endogeneizing Volatility: Pecuniary Externalities and the Credit Channel ; 4. Endogenous Volatility in an Open Economy ; 5. The Third Generation Approach to Currency Crises ; Conclusion