Mitigating economic volatility: when building efficient financial markets should supersede conventional economic policy
Mitigating economic volatility: when building efficient financial markets should supersede conventional economic policy
The choice of instruments for mitigating economic volatility is a serious consideration for policymakers and important question in government and economics. Using a DSGE model with endogenous technology creation, we show that efficient financial markets are more effective than conventional economic policies, such as fiscal interventions, in reducing economic volatility. Our findings are consistent with data from the Chinese and the US economies who contrast in structure perfectly for the purpose of our comparison. The implication is that rather than focusing on conventional economic policies, a government should help establish efficient financial markets to allow producers a hedge into equity finance during times of financial stress.
Economic policy, Financial crises, Financial development, General equilibrium, Stock markets
Haque, M Emranul
18d4ad1f-022e-4077-9570-9bc52190207f
Middleditch, Paul
aeb99a1b-9972-492a-9619-9b028072d05b
Zhang, Shuonan
093a5840-cc2a-4306-9eff-522daca9a79f
6 February 2023
Haque, M Emranul
18d4ad1f-022e-4077-9570-9bc52190207f
Middleditch, Paul
aeb99a1b-9972-492a-9619-9b028072d05b
Zhang, Shuonan
093a5840-cc2a-4306-9eff-522daca9a79f
Haque, M Emranul, Middleditch, Paul and Zhang, Shuonan
(2023)
Mitigating economic volatility: when building efficient financial markets should supersede conventional economic policy.
Journal of Government and Economics, 8, [100059].
(doi:10.1016/j.jge.2023.100059).
Abstract
The choice of instruments for mitigating economic volatility is a serious consideration for policymakers and important question in government and economics. Using a DSGE model with endogenous technology creation, we show that efficient financial markets are more effective than conventional economic policies, such as fiscal interventions, in reducing economic volatility. Our findings are consistent with data from the Chinese and the US economies who contrast in structure perfectly for the purpose of our comparison. The implication is that rather than focusing on conventional economic policies, a government should help establish efficient financial markets to allow producers a hedge into equity finance during times of financial stress.
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Accepted/In Press date: 13 January 2023
e-pub ahead of print date: 21 January 2023
Published date: 6 February 2023
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Publisher Copyright:
© 2023
Keywords:
Economic policy, Financial crises, Financial development, General equilibrium, Stock markets
Identifiers
Local EPrints ID: 475548
URI: http://eprints.soton.ac.uk/id/eprint/475548
ISSN: 2667-3193
PURE UUID: 7aaba94f-4c70-4f63-b8f1-e0fccbe4924b
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Date deposited: 21 Mar 2023 17:42
Last modified: 17 Mar 2024 04:17
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Contributors
Author:
M Emranul Haque
Author:
Paul Middleditch
Author:
Shuonan Zhang
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