Is the Growth Effect of Financial Development Conditional on Technological Innovation?

Abstract

This paper examines the role of the precautionary demand for liquidity and the interest on reserves as two potential determinants of the deposits channel that can help explain the role of monetary policy, particularly at the near zero-bound. At high levels of precautionary liquidity hoarding the optimal policy response of a Taylor rule is shown to indicate a zero weight on in ‡ation. This result is explained by the e¤ect that the demand for liquidity has on the deposit rate which determines the intertemporal choices of households. Similarly, through its e¤ect on the deposits channel the interest on reserves can act as the main tool of monetary policy, that is shown to provide higher welfare gains in relation to a simple Taylor rule. This result is shown to hold at the zero-bound and it is independent of the precautionary demand for liquidity, or …scal theory of the price level properties. JEL Classi…cation Numbers: E31, E32, E44, E52, E50, G28

The Aggregate Impact of Trade and Migration on Economic Growth and its Components: Evidence from Emerging Economies

“…For example, globalization introduces the new goods and services, the managerial skills, labor mobility, and openness of the market. This result is supported by most of the existing studies (Bhatti et al, 2013;Chen & Feng, 2000;Frankel. & Romer, 1999;Makki & Somwaru, 2004;Ortega & Peri, 2001).…”

“…The real per capita GDP growth is used as a proxy of economic growth which is calculated as a log difference of real per capita GDP growth. This variable is extensively used in empirical studies as a proxy of economic growth such as Bhatti, Haque, and Osborn (2013) and Ortega and Peri (2001).…”

“…Investment is the addition to the total capital stock of a country. Gross fixed capital formation (GCF) is used as a proxy for investment (Bhatti et al, 2013). There exists a strong empirical relationship between GCF and economic growth (Coutinho & Gallo, 1991;Khan & Reinhart, 1990;Serven & Solimano, 1990).…”

“…Government expenditures are also known as public spending and it is calculated as government final consumption expenditures percent of GDP. In the empirical literature, it is shown to harm economic growth (Barro, 1991(Barro, , 2001Bhatti et al, 2013;Fischer, 1993;Mankiw, Romer, & Weil, 1992). GDP.…”

“…GDP. Most of the empirical studies show a positive effect of PRIV on economic growth (Bhatti et al, 2013;Mbate, 2013;Olowofeso, Adeleke, & Udoji, 2015).…”