Explaining the Behavior of Financial Intermediation: Evidence from Transition Economies
March 1, 1999
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Summary
This paper investigates the effects of macroeconomic and structural variables on financial intermediation. To this end, it presents a theoretical foundation for two new measures of intermediation, the money multiplier and the ratio of private sector credit to monetary base. Results from panel estimations covering 19 transition economies indicate that policy makers need to address in particular the problems of bad loans on bank balance sheets and high market concentration while maintaining a stable macroeconomic environment. Further variables, such as minimum reserve requirements and the capital adequacy ratio, are found to possess less explanatory power.
Subject: Banking, Credit, Financial institutions, Financial markets, Financial sector development, Inflation, Monetary base, Money, Nonperforming loans, Prices
Keywords: Baltics, concentration ratio, Credit, Eastern Europe, economic growth, financial intermediation, Financial sector development, Inflation, inflation cost, inflation expectation, interest rate level, interest rate variable, Monetary base, nominal interest rate, Nonperforming loans, opportunity cost, private sector, transition economies, transition economy, WP
Pages:
32
Volume:
1999
DOI:
Issue:
036
Series:
Working Paper No. 1999/036
Stock No:
WPIEA0361999
ISBN:
9781451845433
ISSN:
1018-5941
