The impact of banking crises on money demand and price stability

Maria Soledad Martinez Peria

No 2305, Policy Research Working Paper Series from The World Bank

Abstract: The author empirically investigates the monetary impact of banking crises in Colombia, Chile, Denmark, Japan, Kenya, Malaysia, and Uruguay. She uses co-integration analysis and error correction modeling to research: 1) Whether money demand stability is threatened by banking crises. 2) Whether crises bring about structural breaks in the relationship between monetary indicators and prices. Overall, she finds no systematic evidence that banking crises cause money demand instability. Nor do the results consistently support the notion that the relationship between monetary indicators and prices undergoes structural breaks during crises. However, although individual coefficients in price equations do not seem to be severely affected by crises, crises can sometimes give rise to variance instability in price or inflation equations.

Keywords: Economic Theory&Research; Financial Intermediation; Payment Systems&Infrastructure; Environmental Economics&Policies; Fiscal&Monetary Policy; Financial Intermediation; Settlement of Investment Disputes; Economic Theory&Research; Fiscal&Monetary Policy; Environmental Economics&Policies (search for similar items in EconPapers)
Date: 2000-03-31
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