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Development of Financial Markets and Macroeconomic Policy

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  • Peter J. Montiel

Abstract

This paper provides a general overview of the ways that macroeconomic policies can advance or retard financial development, as well as of how financial development can affect the functioning of macroeconomic policies, with a specific focus on how it can alter the mechanisms through which central bank actions can influence domestic economic activity. Understanding the latter is important, because a failure to appreciate how the effects of monetary policy are likely to change as the financial system evolves could make the process of financial development and innovation itself a source of macroeconomic instability. The key findings are that the relative importance of alternative channels of monetary transmission is likely to vary in a systematic way over the course of financial development and that financial development enhances the premium on transparency and predictability of monetary policy. Copyright 2003, Oxford University Press.

Suggested Citation

  • Peter J. Montiel, 2003. "Development of Financial Markets and Macroeconomic Policy," Journal of African Economies, Centre for the Study of African Economies, vol. 12(Supplemen), pages 12-52, September.
    • Handle: RePEc:oup:jafrec:v:12:y:2003:i:supp2:p:12-52
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    Cited by:

    1. Gries, Thomas & Kraft, Manfred & Meierrieks, Daniel, 2009. "Linkages Between Financial Deepening, Trade Openness, and Economic Development: Causality Evidence from Sub-Saharan Africa," World Development, Elsevier, vol. 37(12), pages 1849-1860, December.
    2. Mr. David Hauner, 2006. "Fiscal Policy and Financial Development," IMF Working Papers 2006/026, International Monetary Fund.
    3. Narayan, Paresh Kumar & Narayan, Seema, 2013. "The short-run relationship between the financial system and economic growth: New evidence from regional panels," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 70-78.
    4. Choi, Jae Hoon & Munro, David, 2022. "Market liquidity and excess volatility: Theory and experiment," Journal of Economic Dynamics and Control, Elsevier, vol. 139(C).
    5. Abdul Rahman & Muhammad Arshad Khan, 2024. "Role of consistent regime-specific policies in recovering the negative relationship between financial development and economic growth," Economic Change and Restructuring, Springer, vol. 57(4), pages 1-27, August.
    6. Le, Thai-Ha & Tran-Nam, Binh, 2018. "Trade liberalization, financial modernization and economic development: An empirical study of selected Asia–Pacific countries," Research in Economics, Elsevier, vol. 72(2), pages 343-355.
    7. Muhsin KAR & Saban NAZLIOGLU & Huseyin AGIR, 2014. "Trade Openness, Financial Development, and Economic Growth in Turkey: Linear and Nonlinear Causality Analysis," Journal of BRSA Banking and Financial Markets, Banking Regulation and Supervision Agency, vol. 8(1), pages 63-86.
    8. Marshall Mays, 2007. "The Importance of Domestic Institutional Investors in Pakistan’s Growing Bond Market," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 3, pages 89-106.

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