An Evolutionary Growth Model with Banking Activity

41 Pages Posted: 10 Jun 2017

See all articles by Isabel Almudi

Isabel Almudi

University of Zaragoza

Francisco Fatás-Villafranca

University of Zaragoza

Gloria Jarne

University of Zaragoza

Julio Sánchez Chóliz

University of Zaragoza

Date Written: January 1, 2017

Abstract

In this paper, we propose an evolutionary growth model in which an innovative production sector interacts with a simplified banking sector. We explore the relationships between long-term sources of growth (technological change), and short-term/mid-term factors (such as price dynamics and interest rates). The model suggests new explanations for the endogenous emergence of sharp crises with profound effects in the long run. An interesting aspect of the model is that these crises appear in a strictly private economy, in which everything produced is sold, there are no government distortions, and there are no exogenous shocks. The crises emerge from the interactions between uneven innovation rates and market reactivity. In fact, high reactivity in financial markets can amplify the (initially small) effects of innovative competition, leading to a destabilization of economic growth. Drawing on the model results we suggest some policy implications.

Keywords: Innovation, Evolutionary Economics, Economic Growth, Banking, Crises

JEL Classification: B52, O42, E52

Suggested Citation

Almudi, Isabel and Fatás-Villafranca, Francisco and Jarne, Gloria and Chóliz, Julio Sánchez, An Evolutionary Growth Model with Banking Activity (January 1, 2017). Available at SSRN: https://ssrn.com/abstract=2983731 or http://dx.doi.org/10.2139/ssrn.2983731

Isabel Almudi (Contact Author)

University of Zaragoza ( email )

Gran Via 2
Zaragoza, 50005
Spain

Francisco Fatás-Villafranca

University of Zaragoza ( email )

Zaragoza, 50005
Spain

Gloria Jarne

University of Zaragoza ( email )

Gran Via 2
Zaragoza, 50005
Spain

Julio Sánchez Chóliz

University of Zaragoza ( email )

Gran Via 2
Zaragoza, 50005
Spain

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