EconPapers    
Economics at your fingertips  
 

Deposit Volatility, Liquidity and Long-Term Investment: Evidence from a Natural Experiment in Pakistan

Ali Choudhary and Nicola Limodio

No 613, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

Abstract: Deposit volatility and costly bank liquidity increase the long-term lending rates offered by banks, which reduce loan maturities, long-term investment and output. We formalise this mechanism in a banking model and analyse exogenous variation in deposit volatility induced by a Sharia levy in Pakistan. Data from the credit registry and a firm-level survey show that deposit volatility and liquidity cost: 1) reduce loan maturities and lending rates; 2) leave loan amounts and total investment unchanged; 3) redirect investment from fixed assets towards working capital. A targeted liquidity program is quantified to generate yearly output gains between 0.042% and 0.205%. JEL: O12, G21, O16, E58 Keywords: Development, Banking, Investment, Central Banks

Date: 2017
New Economics Papers: this item is included in nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://repec.unibocconi.it/igier/igi/wp/2017/613.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:igi:igierp:613

Ordering information: This working paper can be ordered from
https://repec.unibocconi.it/igier/igi/
igier@unibocconi.it

Access Statistics for this paper

More papers in Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University via Rontgen, 1 - 20136 Milano (Italy).
Bibliographic data for series maintained by (igier@unibocconi.it).

 
Page updated 2024-12-16
Handle: RePEc:igi:igierp:613