Inflation and Financial Depth

Mohsin Khan, Abdelhak Senhadji and Bruce Smith

No 2001/044, IMF Working Papers from International Monetary Fund

Abstract: There is now a substantial theoretical literature arguing that inflation impedes financial deepening. Furthermore, it has been hypothesized that the relationship is a nonlinear one, in that there is a threshold level of inflation below which inflation has a positive effect on financial depth, but above which the effect turns negative. Using a large cross-country sample, empirical support is found for the existence of such a threshold. The estimates indicate that the threshold level of inflation is generally between 3 and 6 percent a year, depending on the specific measure of financial depth that is used.

Keywords: WP; rate of inflation; financial market; credit rationing; credit market (search for similar items in EconPapers)
Pages: 31
Date: 2001-04-01
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Citations: View citations in EconPapers (38)

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Journal Article: INFLATION AND FINANCIAL DEPTH (2006)
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