Volatility And Growth

Hardcover | July 28, 2005

byPhilippe Aghion, Abhijit Banerjee

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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 macroeconomicvolatility 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 volatilityand 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 afixed 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 byfirms. 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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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 macroeconomicvolatility on productivity growth, and also th...

Philippe Aghion is the Robert C. Waggoner Professor of Economics in the Department of Economics at Harvard University. He has held positions at MIT, the French CNRS, the University of Oxford, and University College London, and joined the Harvard faculty in 2000. In 2001 he received the Yrjo Jahnsson Award of the European Economic Asso...

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Format:HardcoverDimensions:160 pages, 8.5 × 5.43 × 0.61 inPublished:July 28, 2005Publisher:Oxford University PressLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0199248613

ISBN - 13:9780199248612

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Table of Contents

Introduction0. Modeling Credit Markets1. Volatility and Growth: AK versus Schumpeterian Approach2. Financial Development and the Effects of Growth on Volatility3. Endogeneizing Volatility: Pecuniary Externalities and the Credit Channel4. Endogenous Volatility in an Open Economy5. The Third Generation Approach to Currency CrisesConclusion