Economics at your fingertips  

The role of fractional-reserve banking in amplifying credit booms: Evidence from panel data

Maciej Albinowski

The Review of Austrian Economics, 2022, vol. 35, issue 1, No 4, 63-88

Abstract: Abstract I use panel data on 20 countries to analyze the links between savings (defined as time deposits and savings accounts) and credit extended by banks. Credit growth is not related to prior changes in savings, at least not in the short run. This result indicates that the intuition behind the loanable funds theory does not work well in explaining macroeconomic dynamics. I also find that the share of savings in total deposits decreases during credit booms. The existence of such an effect is predicted by the Austrian business cycle theory. Based on the above results, I infer that an important disadvantage of fractional-reserve banking is a tendency for the market interest rate to diverge from the natural interest rate.

Keywords: Loanable funds; Deposits; Credit booms; Fractional-reserve banking; E51; E32; E41 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: The role of fractional-reserve banking in amplifying credit booms: evidence from panel data (2017) Downloads
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:

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/11138/PS2

DOI: 10.1007/s11138-019-00492-7

Access Statistics for this article

The Review of Austrian Economics is currently edited by Peter Boettke and Christopher Coyne

More articles in The Review of Austrian Economics from Springer, Society for the Development of Austrian Economics Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

Page updated 2023-07-28
Handle: RePEc:kap:revaec:v:35:y:2022:i:1:d:10.1007_s11138-019-00492-7