The A MARKOV SWITCHING MODEL TO FINANCIAL MARKET DEVELOPMENT AND ECONOMIC GROWTH
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Abstract
As we show, there were a number of regime adjustments in the relationship between the financial sector's share, private saving,
and growth in the United States between 1948 and 1996. On the basis of vector auto regressions on quarterly data, which allow
for Markov switching regimes, the discovery was made. The data supports the premise that the relationship between financial
development and economic growth unfolds in a progressive manner. Stepwise patterns can be seen in theoretical models when
structural financial developments need fixed expenses. Although our data does not allow us to draw firm conclusions, our
estimates of the relationships between variables are consistent with those predicted from such models. The adjustments are
occurring at the same time as regulatory and market structural changes.Keywords: growth, Markov switching, saving,
structural financial development, vector autoregression
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