Canadian study links financial development and income volatility


A more developed financial sector can cushion an economy from the effects of a technology shock, a working paper published by the Bank of Canada in January has found.

Researchers Tiago Pinheiro, Francisco Rivadeneyra and Marc Teignier developed a model based on the "dynamic interaction" of asset prices – affecting the value of collateral, and therefore credit constraints – and the availability of credit, which in turn affects asset prices.

The paper shows that financial development increases the

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