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Financial intermediation, variability and the development process

By Luis Carranza and Jose E. Galdón-Sánchez

Abstract

In this paper we have built a model of financial intermediation that explains the GDP variability pattern of an economy during the development process. In our model, per capita is more volatile in the middle-income economies than in both low and high-income economies. We show that, if the model economy is in the early or in the mature stages of development there is a unique equilibrium. However, in the middle stages of development multiple equilibria arise. Moreover, we find that in economies with imperfect credit markets, per capita output volatility tends to be higher than in economies with perfect or non-existent credit markets

Topics: HG Finance
Publisher: Suntory and Toyota International Centres for Economics and Political Science, London School of Economics and Political Science
Year: 2000
OAI identifier: oai:eprints.lse.ac.uk:6660
Provided by: LSE Research Online

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