Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/23452 
Authors: 
Year of Publication: 
2004
Series/Report no.: 
Public Policy Discussion Papers No. 04-6
Publisher: 
Federal Reserve Bank of Boston, Boston, MA
Abstract: 
More financially developed countries show lower volatility of industrial output. Volatility is particularly reduced in industries that are more financially dependent. Most of the reduction is in idiosyncratic volatility. Systematic volatility is reduced less strongly, implying that industries are more closely correlated with GDP in more financially developed countries. At the firm level, short-term debt is negatively correlated with output as financial development increases, suggesting that debt is used in a countercyclical way to stabilize production. The results indicate that financial development relaxes financial constraints mainly to smooth negative cashflow shocks.
Subjects: 
financial development
financial constraints
volatility
JEL: 
O16
G31
E32
G0
Document Type: 
Working Paper

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