LAUSR

This paper examines the relationship between financial stability, monetary policy, and economic growth in 40 developed and developing countries by using the annual panel data over the period of 1993–2015. Fixed and random effects panel data regression models were fitted to determine the impact of financial stability and monetary policy on economic growth. Our results indicate that trade openness, capital account openness, and foreign direct investment have positive impacts on economic growth with a high degree in developed countries. Our empirical results also indicate a positive and significant impact of research and development on financial development as well as economic growth in developed countries. Financial crises, bank liquid reserves, and bank nonperforming loans affect negatively financial stability, financial development, as well as economic growth. This impact essentially amounts to the sensitivity and fragility of the banking system. In addition, inflation continues to affect economic growth in a negative way. The main findings confirm the complementarity and the importance of real, financial, monetary variables and bank solidity as well their significant impacts on financial stability and economic development.