Explaining the Behavior of Financial Intermediation: Evidence from Transition Economies

Philipp Rother

No 1999/036, IMF Working Papers from International Monetary Fund

Abstract: This paper investigates the effects of macroeconomic and structural variables on financial intermediation. To this end, it presents a theoretical foundation for two new measures of intermediation, the money multiplier and the ratio of private sector credit to monetary base. Results from panel estimations covering 19 transition economies indicate that policy makers need to address in particular the problems of bad loans on bank balance sheets and high market concentration while maintaining a stable macroeconomic environment. Further variables, such as minimum reserve requirements and the capital adequacy ratio, are found to possess less explanatory power.

Keywords: WP; concentration ratio; private sector; economic growth; inflation expectation; financial intermediation; transition economies; interest rate variable; opportunity cost; inflation cost; interest rate level; transition economy; nominal interest rate; Credit; Inflation; Monetary base; Financial sector development; Nonperforming loans; Eastern Europe; Baltics (search for similar items in EconPapers)
Pages: 32
Date: 1999-03-01
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Citations: View citations in EconPapers (5)

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