2009 Reports

Financial Structures

Ocampo, Jose A.; Rada, Codrina; Taylor, Lance

The financial side of an economy undergoes structural change through the development process. There is no strict progression of financial development and initial conditions matter. But, broadly speaking, new financial structures gradually evolve, in a process that can be seen as a sequence of five "stages" of increasing financial complexity. Understanding financial structures is crucial for the analysis of macroeconomic policy in Chapter 7, since they can increase policy flexibility but can also constrain policy maneuver and generate risks of destabilization for the entire macroeconomy.