Inflation and growth: new evidence from a dynamic panel threshold analysis

Abstract

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Is the Relationship Between Financial Development and Economic Growth Monotonic? Evidence from a Sample of Middle-Income Countries

“…However, some macroeconomic variables such as GDP growth are highly persistent, meaning that a dynamic panel framework is more appropriate. To consider nonlinearity in dynamic panel data, Bick (2010) and Kremer et al (2013) proposed a dynamic panel threshold estimator which is an extension of the threshold models by Hansen (1999), Hansen (2000, and Caner and Hansen (2004). This estimator allows us to investigate the potential existence of a discrete shift in a dynamic framework.…”

“…By applying this test, both necessary and sufficient conditions for the existence of an inverted U-shaped pattern can be verified. 7 As regards the second approach, we follow Bick (2010) and Kremer et al (2013) and estimate a dynamic panel threshold model that accounts for sharp discrete shifts to investigate the potential existence of a threshold level in the linkage between financial development and economic growth. To our knowledge, this is the first study that combines these two different approaches to investigate the non-linearity within the finance and growth nexus.Our findings therefore suggest that the relationship between financial development and economic growth need not be linear, either in the long or short-run.…”

What drives investment bank performance? The role of risk, liquidity and fees prior to and during the crisis

“…To this end, we employ SFA to estimate cost efficiency as a measure of performance of investment banks in the G7 and Switzerland. The next and main contribution of this paper is the application of the dynamic panel threshold model by Kremer et al (2013) in a second stage analysis. The advantage of this methodology is in allowing the data itself to reveal when the financial crisis occurs.…”

“…Specifically, we employ the model of Kremer et al (2013), which is an extension of Hansen (1999) model. It is based on the cross sectional threshold model of Caner and Hansen (2004), where GMM estimators are used to allow for endogeneity.…”

“…However, Kremer et al (2013) opt for a dynamic unbalanced threshold model, which could identify possible coefficient changes on the independent variables of our interest.…”