Macroeconomic impacts of derivative markets

Abstract

There has been much debate over the effect of financial development on economic growth and well-being. A conclusion has not been reached yet; some of the works assert that the level of financial development leads to sounder macroeconomic conditions, whereas some others hold opposing views. Another line of literature concentrates on the relation between the level of existing uncertainty and the level of investment. There are again controversial conclusions reached regarding this relationship; some argue that the level of uncertainty has a negative effect on investment, whereas some argue that the correlation between these two variables is positive. In this paper, the assertions of these two different lines of the literature will be linked under a single heading, the derivative markets. This paper will analyze the effect of the existence and growth rate of the derivative market volume on the standard of living of individuals under the framework first constructed by Mankiw, Romer and Weil (1992).