Financial development, financial constraints, and the volatility of industrial output

Borja Larrain ()

No 04-6, Public Policy Discussion Paper from Federal Reserve Bank of Boston

Abstract: More financially developed countries show lower volatility of industrial output. Volatility is particularly reduced in industries that are more financially dependent. Most of the reduction is in idiosyncratic volatility. Systematic volatility is reduced less strongly, implying that industries are more closely correlated with GDP in more financially developed countries. At the firm level, short-term debt is negatively correlated with output as financial development increases, suggesting that debt is used in a countercyclical way to stabilize production. The results indicate that financial development relaxes financial constraints mainly to smooth negative cashflow shocks

Keywords: Financial modernization; Industrial productivity (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://www.bostonfed.org/economic/ppdp/2004/ppdp0406.htm (text/html)
http://www.bostonfed.org/economic/ppdp/2004/ppdp0406.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedbpp:04-6

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Public Policy Discussion Paper from Federal Reserve Bank of Boston Contact information at EDIRC.
Bibliographic data for series maintained by Catherine Spozio ().