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Financial stability and economic performance in Europe

Abstract : This paper aims at establishing the link between economic performance and financial stability in the European Union. We use the seminal framework of Beck and Levine (2004) – both in terms of variables and econometric method – to estimate this causal relationship, independently from but controlling for the level of financial depth. Using a panel GMM with instrumental variables, our contribution involves testing how different measures of financial instability (an institutional index, microeconomic indicators, and our own statistical index derived from a principal component analysis) affect economic performance (or components of aggregate dynamics like consumption, investment and disposable income). We find that financial instability has a negative effect on economic growth.
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Submitted on : Wednesday, December 1, 2021 - 3:11:21 AM
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Jérôme Creel, Paul Hubert, Fabien Labondance. Financial stability and economic performance in Europe. Economic Modelling, Elsevier, 2015, 48, pp.25 - 40. ⟨10.1016/j.econmod.2014.10.025⟩. ⟨hal-03459729⟩

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