For release: July 2, 2003

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St. Louis Fed's Review: The Influence of Financial Markets and Institutions on the Economy

ST. LOUIS — The July/August issue of Review, the Federal Reserve Bank of St. Louis' bimonthly publication of economic and business issues, features papers presented at the Reserve Bank's 27th Annual Economic Policy Conference, held in October of 2002.

"During recent years, literature that examines the effects of financial markets and institutions has grown rapidly," said R. Alton Gilbert, a vice president and banking advisor at the St. Louis Fed. "This conference volume is designed to examine various facets of the literature through six articles by authors who have been active in publishing their research on finance and real economic activity, and related commentary."

The articles and authors in this issue are:

• "Monetary Policy and Financial Market Evolution," by Valerie R. Bencivenga, a member of the faculty of the University of Texas at Austin, and the late Bruce D. Smith, a professor at the University of Texas at Austin and a consultant to the Federal Reserve Bank of Cleveland. Smith was a major contributor to the literature on the theoretical basis for a link between financial markets and institutions, and the performance of economies.

• "More on Finance and Growth: More Finance, More Growth?" by Ross Levine, the Curtis L. Carson Chair of Finance at the University of Minnesota. Levine, who has been a major contributor to the literature on measuring the effects of the development of financial markets and institutions on the aggregate economic growth of nations, discusses the results of a large number of studies on this topic.

• "Equity Market Liberalization in Emerging Markets," by Geert Bekaert, the L. Cooperman Professor of Finance and Economics at the Graduate School of Business at Columbia University; Campbell R. Harvey, the J. Paul Sticht Professor of International Business at the Fuqua School of Business at Duke University; and Christian T. Lunblad, an assistant professor of finance at the Kelley School of Business at Indiana University. The authors examine the influence on economic growth of actions by emerging market nations to liberalize controls on foreign ownership of the shares of firms in their countries.

• "Historical Perspectives on Financial Development and Economic Growth" by Peter L. Rousseau, an associate professor of economics at Vanderbilt University. Rousseau looks at the development of financial systems in the historical development of the Netherlands, England, the United States and Japan.

• "The Real Effects of U.S. Banking Deregulation," by Philip E. Strahan, an associate professor of finance at the Carroll School of Management at Boston College. Strahan examines the influence of liberalization of restrictions on bank branching by states in the 1980s and 1990s on various indicators of economic activity at the state level.

• "Life-Cycle Dynamics in Industrial Sectors: The Role of Banking Market Structure," by Nicola Cetorelli, a senior economist at the Federal Reserve Bank of Chicago. Cetorelli investigates the influence of banking market structure on the formation of new industrial firms as well as the survival of older companies.

Providing commentaries are:

• Franklin Allen, Nippon Life Professor of Finance and Economics at The Wharton School at the University of Pennsylvania;
• Luigi Zingales, the Robert C. McCormack Professor of Entrepreneurship and Finance at the Graduate School of Business at the University of Chicago;
• Peter Blair Henry, an associate professor of economics at the Graduate School of Business at Stanford University;
• Eugene N. White, an economics professor at Rutgers University;
• David C. Wheelock, an assistant vice president and economist at the Federal Reserve Bank of St. Louis; and
• Raghuram G. Rajan, the Joseph L. Gidwitz Professor of Finance at the Graduate School of Business at the University of Chicago.

Review is also available on the Bank's web site.

With branches in Little Rock, Louisville and Memphis, the Federal Reserve Bank of St. Louis serves the Eighth Federal Reserve District, which includes all of Arkansas, eastern Missouri, southern Indiana, southern Illinois, western Kentucky, western Tennessee and northern Mississippi. The St. Louis Fed is one of 12 regional Reserve Banks that, along with the Board of Governors in Washington, D.C., comprise the Federal Reserve System. As the nation's central bank, the Federal Reserve System formulates U.S. monetary policy, regulates state-chartered member banks and bank holding companies, and provides payment services to financial institutions and the U.S. government.

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