Informality, financial development and macroeconomic volatility
2013
Mitra, Shalini
In a dynamic stochastic general equilibrium model with heterogeneous agents, this note shows that beyond a certain low level, financial development is associated with higher relative consumption–income volatility in the presence of a working capital constraint. Informality on the other hand lowers relative consumption volatility by weakening the working capital requirement channel of financial development.
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