Explaining the Behavior of Financial Intermediation: Evidence from Transition Economies
IMF Working Papers, March 1, 1999
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- Explaining the Behavior of Financial Intermediation: Evidence from Transition Economies
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Bibliographic details
- Authors: Philipp C Rother
- Published: March 1, 1999
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451845433.001
Summary
- The paper investigates the effects of macroeconomic and structural variables on financial intermediation.
- It presents a theoretical foundation for two measures of intermediation:
- the money multiplier
- the ratio of private sector credit to monetary base
- Panel estimations cover 19 transition economies.
Key findings
- Results indicate that policy makers need to address in particular:
- problems of bad loans on bank balance sheets
- high market concentration
- Maintaining a stable macroeconomic environment is also important.
- Further variables found to possess less explanatory power include:
- minimum reserve requirements
- the capital adequacy ratio
Methodology and scope
- Uses a theoretical foundation for two new measures of intermediation (money multiplier; ratio of private sector credit to monetary base).
- Empirical analysis: panel estimations covering 19 transition economies.
Policy implications and recommendations
- Priorities for policy makers:
- Resolve bad loans on bank balance sheets.
- Reduce high market concentration in the banking sector.
- Maintain a stable macroeconomic environment.
- Less emphasis may be warranted on altering:
- minimum reserve requirements
- capital adequacy ratio, given their lower explanatory power in this analysis.
Content in this bundle
- Explaining the Behavior of Financial Intermediation: Evidence from Transition Economies - WP/99/36