Domestic lending when financial markets are integrated: Is it all for real?

Luisa Zanforlin

Applied Economics Letters, 2011, vol. 18, issue 16, 1517-1520

Abstract: Recent episodes of strong growth in banks' credit to the private sector have been accompanied by large appreciations of the real exchange rates. I conjecture that such appreciations have been associated with cross-country interest rate differentials, and integrated financial markets generated increases in domestic liquidity. I also conjecture that real exchange rates alter the relative values of domestic and foreign collateral goods and thus they affect total financing available to a country. I use panel data for 91 countries from 1970 to 2000 to investigate the association between cross-country interest rate differentials, real exchange rate levels and private sector credit growth, through dynamic panel data techniques.

Keywords: bank lending; exchange rate policy; emerging markets (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1080/13504851.2010.548769

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