Formulating Policy for Expanding Financial Access
Current literature on the link between finance, growth, and volatility does not generate clear-cut policy recommendations for developing economies. These types of analyses often rely on empirical evidence or statistical proxies alone, resulting in an incomplete picture of the channels through which financial deepening influences growth and stability.
This CFSP Concept Note sets forth a policy algorithm that relies on the joint consideration of data and theory using micro-founded macroeconomic models. The basic idea is to analyze the data on financial intermediation through the lens of economic theory: identifying obstacles, measuring constrained-efficiency, and basing policy on that outcome. This Concept Note includes practical information about the implementation and calibration of different types of models, as well as examples in which models are currently being utilized.