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Growth and Banking Structure in a Partially Dollarized Economy

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Author Info
Carlos Gustavo Machicado () (Institute for Advanced Development Studies)

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Abstract

This article illustrates how the industrial organization of a banking system affects economic growth in a partially dollarized economy. I study a model where banking competition has some potentially good and some potentially bad effects for growth. I analyze how important they are quatitatively and, surprisingly, they do not seem to matter much. The main reason for this is that while competition leads banks to offer consumers a "better deal" on their deposits, this does not lead to a large increase in the savings rate. The effect depends on the main structural parameter values of the economy. In particular, if there is a high demand for liquidity insurance. I calibrate the model for the Bolivian economy and show that the growth rates under both systems are not significantly different.

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Publisher Info
Paper provided by Institute for Advanced Development Studies in its series Development Research Working Paper Series with number 02/2007.

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Length: 38 pages
Date of creation: Jan 2007
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Handle: RePEc:adv:wpaper:200702

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Related research
Keywords: General equilibrium and growth; Dollarization; Banking; Industrial Organization;

Find related papers by JEL classification:
D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
F31 - International Economics - - International Finance - - - Foreign Exchange
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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References listed on IDEAS
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  2. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October. [Downloadable!] (restricted)
  3. Mohsin S. Khan & A. Senhadji Semlali, 2000. "Threshold Effects in the Relationship Between Inflation and Growth," IMF Working Papers 00/110, International Monetary Fund.
  4. Bruce Champ & Bruce D. Smith & Stephen D. Williamson, 1996. "Currency Elasticity and Banking Panics: Theory and Evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 828-64, November. [Downloadable!] (restricted)
    Other versions:
  5. Gomis-Porqueras, Pere & Smith, Bruce D., 2003. "Seasonality And Monetary Policy," Macroeconomic Dynamics, Cambridge University Press, vol. 7(04), pages 477-502, September. [Downloadable!]
  6. Antinolfi, Gaetano & Huybens, Elisabeth & Keister, Todd, 2001. "Monetary Stability and Liquidity Crises: The Role of the Lender of Last Resort," Journal of Economic Theory, Elsevier, vol. 99(1-2), pages 187-219, July. [Downloadable!] (restricted)
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  7. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June. [Downloadable!] (restricted)
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  8. Huberto M. Ennis & Todd Keister, 2003. "Economic growth, liquidity, and bank runs," Working Paper 03-01, Federal Reserve Bank of Richmond. [Downloadable!]
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  9. Townsend, Robert M, 1987. "Economic Organization with Limited Communication," American Economic Review, American Economic Association, vol. 77(5), pages 954-71, December. [Downloadable!] (restricted)
  10. Bruce D. Smith, 2002. "Monetary Policy, Banking Crises, and the Friedman Rule," American Economic Review, American Economic Association, vol. 92(2), pages 128-134, May. [Downloadable!]
  11. Bullard, James & Keating, John W., 1995. "The long-run relationship between inflation and output in postwar economies," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 477-496, December. [Downloadable!] (restricted)
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