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Relative Price Stability, Creditor Rights, and Financial Deepening

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Author Info

  • Pablo Druck
  • Alexander Plekhanov
  • Mario Dehesa

Abstract

The paper provides a theoretical and cross-country empirical analysis of the determinants of financial deepening, and finds that higher credit-to-GDP ratios are associated with stronger creditor rights and lower inflation, and that the marginal effect of improvements in creditor rights protection is declining as the rate of inflation increases. The analysis suggests that in a high inflation environment, controlling inflation and reducing macroeconomic volatility should be given priority. Once these goals are achieved, the focus of attention should shift to creditor rights protection and credit information management.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/139.

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Length: 21
Date of creation: 01 Jun 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/139

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Related research

Keywords: Debt management; inflation; relative price; relative price variability; high inflation; price stability; inflation rate; low inflation; macroeconomic stability; lower inflation; relative prices; rate of inflation; average inflation; monetary fund; monetary dynamics; high inflation environment; quantity theory of money; coefficient on inflation; quantity theory; monetary factors; low levels of inflation; increase in inflation; theory of money;

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References

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  1. Beck, T.H.L. & Demirgüç-Kunt, A. & Levine, R., 2000. "A new database on financial development and structure," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-3125518, Tilburg University.
  2. Stulz, Rene M. & Williamson, Rohan, 2003. "Culture, openness, and finance," Journal of Financial Economics, Elsevier, Elsevier, vol. 70(3), pages 313-349, December.
  3. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Law and Finance," Working Paper 19451, Harvard University OpenScholar.
  4. Arturo Galindo & Alejandro Micco, 2005. "Creditor Protection and Credit Volatility," IDB Publications 6831, Inter-American Development Bank.
  5. Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007. "Private credit in 129 countries," Journal of Financial Economics, Elsevier, Elsevier, vol. 84(2), pages 299-329, May.
  6. RAFAEL LaPORTA & FLORENCIO LOPEZ-de-SILANES & ANDREI SHLEIFER & ROBERT W. VISHNY, . "Legal Determinants of External Finance,"," CRSP working papers, Center for Research in Security Prices, Graduate School of Business, University of Chicago 324, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  7. Jaramillo, Carlos Felipe, 1999. "Inflation and Relative Price Variability: Reinstating Parks' Results," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 31(3), pages 375-85, August.
  8. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, American Economic Association, vol. 71(3), pages 393-410, June.
  9. Pablo Druck & Pietro Garibaldi, 2000. "Inflation Risk and Portfolio Allocation in the Banking System," CEMA Working Papers: Serie Documentos de Trabajo., Universidad del CEMA 181, Universidad del CEMA.
  10. Arturo Galindo & Alejandro Micco, 2004. "Creditor protection and financial markets: empirical evidence and implications for Latin America," Economic Review, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Atlanta, issue Q 2, pages 29 - 37.
  11. Jaffee, Dwight M & Russell, Thomas, 1976. "Imperfect Information, Uncertainty, and Credit Rationing," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 90(4), pages 651-66, November.
  12. Lach, Saul & Tsiddon, Daniel, 1992. "The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(2), pages 349-89, April.
  13. Guy Debelle & Owen Lamont, 1996. "Relative Price Variability and Inflation: Evidence from US Cities," NBER Working Papers 5627, National Bureau of Economic Research, Inc.
  14. Moore, B. J., 1986. "Inflation and financial deepening," Journal of Development Economics, Elsevier, Elsevier, vol. 20(1), pages 125-133.
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Citations

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Cited by:
  1. Manoel Bittencourt, 2008. "Inflation and Financial Development: Evidence from Brazil," Working Papers 67, Economic Research Southern Africa.
  2. Dhaneshwar Ghura & Kangni Kpodar & Raju Jan Singh, 2009. "Financial Deepening in the CFA Franc Zone:The Role of Institutions," IMF Working Papers, International Monetary Fund 09/113, International Monetary Fund.
  3. Alexander Plekhanov & Asel Isakova, 2011. "Region-specific constraints to doing business: evidence from Russia," Working Papers, European Bank for Reconstruction and Development, Office of the Chief Economist 125, European Bank for Reconstruction and Development, Office of the Chief Economist.
  4. Joe Crowley, 2008. "Credit Growth in the Middle East, North Africa, and Central Asia Region," IMF Working Papers, International Monetary Fund 08/184, International Monetary Fund.
  5. Kpodar, Kangni & Singh, Raju Jan, 2011. "Does financial structure matter for poverty ? evidence from developing countries," Policy Research Working Paper Series 5915, The World Bank.
  6. Kutan, Ali M. & Ozsoz, Emre & Rengifo, Erick W., 2012. "Cross-sectional determinants of bank performance under deposit dollarization in emerging markets," Emerging Markets Review, Elsevier, Elsevier, vol. 13(4), pages 478-492.
  7. Hossain, Monzur & Rafiq, Farhana, 2012. "Global Commodity Price Volatility and Domestic Inflation: Impact on the Performance of the Financial Sector in Bangladesh," MPRA Paper 52167, University Library of Munich, Germany.
  8. Yifei Huang & Raju Jan Singh, 2011. "Financial Deepening, Property Rights and Poverty," IMF Working Papers, International Monetary Fund 11/196, International Monetary Fund.
  9. Santos ALIMI, 2014. "Inflation and Financial Sector Performance: the Case of Nigeria," Timisoara Journal of Economics and Business, West University of Timisoara, Romania, Faculty of Economics and Business Administration, West University of Timisoara, Romania, Faculty of Economics and Business Administration, vol. 7(1), pages 55–69.
  10. Peter L. Rousseau & Hakan Yilmazkuday, 2009. "Inflation, Finance, and Growth: A Trilateral Analysis," Vanderbilt University Department of Economics Working Papers, Vanderbilt University Department of Economics 0916, Vanderbilt University Department of Economics.

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