Financial stability and economic performance

Jérôme Creel (1) , Paul Hubert (1) , Fabien Labondance (2)

1 OFCE - Observatoire français des conjonctures économiques (Sciences Po)
2 ARPEGE - Atelier de recherche sur la politique économique et la gestion des entreprises

This paper aims at establishing the link between economic performance, financial depth and financial stability in the European Union from 1998 to 2011. We use the standard framework - both in terms of variables and econometric method - of Beck and Levine (2004) to estimate these relationships. Our results suggest that the traditional result that financial depth positively influences economic performance (or components of aggregate dynamics like consumption, investment or disposable income) is not confirmed for European countries. Furthermore, we use different measures of financial instability (institutional index, microeconomic indicators, and our own statistical index derived from a Principal Component Analysis) and find that financial instability has a negative effect on economic growth.

Mots clés: Financial deppth; Aggregate dynamics; financial stability; banks; non perrforming loans; CISS; Z score; principal component analysis

Domaines: Economies et finances

Jérôme Creel, Paul Hubert, Fabien Labondance. Financial stability and economic performance. 2013. ⟨hal-01064263⟩