Implications of Financial Development and Macroprudential Policy for Economic Growth: A European Panel of Countries

Abstract

This diploma thesis analyses interactions and implications of financial development and macroprudential policy for economic growth in the European Monetary Union. The panel of 12 countries contain those who adopted the single currency (euro) until 2001. Theoretical part of the thesis includes literature review on the analysed phenomena and their interactions. Data part contains analyses of financial sectors and legislative and institutional frameworks of monetary and macroprudential policy, together with analysis of key datasets. Empirical part is based on dynamic panel data regression with generalised method of moments (GMM) estimator on data for 1980-2017 period (baseline model) and 2000-2017 period (extended model). The panel regression results prove a positive and statistically significant relationship between financial development and economic growth and more influential role of financial markets development over financial institutions development. Macroprudential policy offsets the impact of financial development on economic growth, but the macroprudential policy-financial development interaction has a positive relationship with economic growth in the analysed sample of countries.