Advanced Search
MyIDEAS: Login

Interest Rates, Credit Rationing, and Investment in Developing Countries

Contents:

Author Info

  • Mwanza Nkusu
Registered author(s):

    Abstract

    This paper examines the impact of interest rates and inflation on bank loans and investment within a framework that mimics the financial sectors prevailing in most low-income developing countries. The paper emphasizes the importance of treating the lending and deposit rates of interest as distinct parameters in investment equations. The spread between the two rates is indicative of default risk and has a negative impact on incremental loan amounts associated with higher lending rates, in particular in economies with flawed institutions. The model presented in the paper highlights the importance of promoting macroeconomic stability and upgrading institutions and informational infrastructure.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=16330
    Download Restriction: no

    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/63.

    as in new window
    Length: 31
    Date of creation: 01 Mar 2003
    Date of revision:
    Handle: RePEc:imf:imfwpa:03/63

    Contact details of provider:
    Postal: International Monetary Fund, Washington, DC USA
    Phone: (202) 623-7000
    Fax: (202) 623-4661
    Email:
    Web page: http://www.imf.org/external/pubind.htm
    More information through EDIRC

    Order Information:
    Web: http://www.imf.org/external/pubs/pubs/ord_info.htm

    Related research

    Keywords: Credit; Developing countries; Interest rates; Investment; Economic models; bank loans; macroeconomic stability; inflation; bank credit; banking; rate of inflation; banking system; monetary base; bank lending; monetary economics; monetary policy; bank deposits; investment spending; real interest rates; real value; reserve ratio; money growth; probability of default; real money; retail bank; price level; inflation affect; bank loan; banking sector; bank reserves; bank spreads; disintermediation; bank portfolio; real variables; bank account; excess demand; banks ? balance sheet; inflation rate; bank deposit; credit policy; high interest rates; nominal capital; bank issues;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
    2. Andrew B. Abel, 1986. "Dynamic Behavior of Capital Accumulation in a Cash-in-Advance Model," NBER Working Papers 1549, National Bureau of Economic Research, Inc.
    3. Giovanna Mossetti, 1990. "Inside Money, Output, and Inventories in a Business Cycle," Canadian Journal of Economics, Canadian Economics Association, vol. 23(2), pages 381-99, May.
    4. Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
    5. Jaffee, Dwight M & Modigliani, Franco, 1969. "A Theory and Test of Credit Rationing," American Economic Review, American Economic Association, vol. 59(5), pages 850-72, December.
    6. Hellwig, Martin F., 1993. "The challenge of monetary theory," European Economic Review, Elsevier, vol. 37(2-3), pages 215-242, April.
    7. Stephen D. Williamson, 1984. "Costly Monitoring, Loan Contracts and Equilibrium Credit Rationing," Working Papers 572, Queen's University, Department of Economics.
    8. Cardoso, Eliana, 1993. "Private Investment in Latin America," Economic Development and Cultural Change, University of Chicago Press, vol. 41(4), pages 833-48, July.
    9. Jaffee, Dwight & Stiglitz, Joseph, 1990. "Credit rationing," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 16, pages 837-888 Elsevier.
    10. Grogan, Louise & Moers, Luc, 2001. "Growth empirics with institutional measures for transition countries," Economic Systems, Elsevier, vol. 25(4), pages 323-344, December.
    11. Jaffee, Dwight M & Russell, Thomas, 1976. "Imperfect Information, Uncertainty, and Credit Rationing," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 651-66, November.
    12. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
    13. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
    14. Palivos, T. & Wang, P. & Zhang, 1990. "Velocity of Money in a Generalized Cash-In-Advance Economy: Theory and Evidence," Papers 12-90-5, Pennsylvania State - Department of Economics.
    15. Joshua Greene & Delano Villanueva, 1991. "Private Investment in Developing Countries: An Empirical Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 33-58, March.
    16. Brock, Philip L. & Rojas Suarez, Liliana, 2000. "Understanding the behavior of bank spreads in Latin America," Journal of Development Economics, Elsevier, vol. 63(1), pages 113-134, October.
    17. Englund, Peter & Svensson, Lars E O, 1988. "Money and Banking in a Cash-in-Advance Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(4), pages 681-705, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:03/63. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.