Scandinavian Working Papers in Economics

Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

No 442: A Traffic-Jam Theory of Growth

Daria Finocchiaro () and Philippe Weil ()
Additional contact information
Daria Finocchiaro: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Philippe Weil: Université libre de Bruxelles and CEPR

Abstract: We investigate the growth-finance nexus in an endogenous growth model with search frictions and congestion effects in credit and innovation markets. The interplay between these two frictions generates a nonlinear relationship between finance and growth. Financial development eases the financing of innovation but can exacerbate bottlenecks in R&D. In a calibration close to the U.S. economy, finance has a negative impact on growth. This effect is quantitatively small– consistent with the observation that, in the last century, most developed economies have experienced an expansion of the financial sector and almost constant growth rates of GDP.

Keywords: Growth; Finance; Search frictions; Technology; Innovation

JEL-codes: E51; G24; O40

Language: English

57 pages, October 1, 2024

Full text files 

no.-442-a-traffic-jam-theory-of-growth.pdf PDF-file Full text

Download statistics

Questions (including download problems) about the papers in this series should be directed to Lena Löfgren ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhs:rbnkwp:0442This page generated on 2024-10-23 11:26:33.