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The impact of banking crises on money demand and price stability

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Author Info
Martinez Peria, Maria Soledad

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Abstract

The author empirically investigates the monetary impact of banking crises in Colombia, Chile, Denmark, Japan, Kenya, Malaysia, and Uruguay. She uses co-integration analysis and error correction modeling to research: 1) Whether money demand stability is threatened by banking crises. 2) Whether crises bring about structural breaks in the relationship between monetary indicators and prices. Overall, she finds no systematic evidence that banking crises cause money demand instability. Nor do the results consistently support the notion that the relationship between monetary indicators and prices undergoes structural breaks during crises. However, although individual coefficients in price equations do not seem to be severely affected by crises, crises can sometimes give rise to variance instability in price or inflation equations.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2305.

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Date of creation: 31 Mar 2000
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Handle: RePEc:wbk:wbrwps:2305

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Related research
Keywords: Economic Theory&Research; Financial Intermediation; Payment Systems&Infrastructure; Environmental Economics&Policies; Fiscal&Monetary Policy; Financial Intermediation; Settlement of Investment Disputes; Economic Theory&Research; Fiscal&Monetary Policy; Environmental Economics&Policies;

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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.:
  1. Reinhart, Carmen & Reinhart, Vincent, 1991. "Output Fluctuations and Monetary Shocks: Evidence from Colombia," MPRA Paper 6980, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  2. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June. [Downloadable!] (restricted)
  3. Richard D. Haas & Donald J. Mathieson, 1994. "Establishing Monetary Control in Financial Systems With Insolvent Institutions," IMF Policy Discussion Papers 94/10, International Monetary Fund.
  4. Kamas, Linda, 1995. "Monetary policy and inflation under the crawling peg: Some evidence from VARs for Colombia," Journal of Development Economics, Elsevier, vol. 46(1), pages 145-161, February. [Downloadable!] (restricted)
  5. Martin Mühleisen, 1995. "Monetary Policy and Inflation Indicators for Finland," IMF Working Papers 95/115, International Monetary Fund.
  6. Stock, James H. & Watson, Mark W., 1989. "Interpreting the evidence on money-income causality," Journal of Econometrics, Elsevier, vol. 40(1), pages 161-181, January. [Downloadable!] (restricted)
  7. Fullerton, Thomas Jr., 1993. "Inflationary trends in Colombia," Journal of Policy Modeling, Elsevier, vol. 15(4), pages 463-468, August. [Downloadable!] (restricted)
  8. Karatzas, George, 1993. "Government Deficits, Monetization, International Reserve Flows, and Inflation in Selected African Countries," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 46(2-3), pages 201-224.
  9. Alicia García-Herrero, 1997. "Monetary Impact of a Banking Crisis and the Conduct of Monetary Policy," IMF Working Papers 97/124, International Monetary Fund.
  10. Ramana Ramaswamy & Josef Baumgartner, 1996. "Inflation Targeting in the United Kingdom: Information Content of Financial and Monetary Variables," IMF Working Papers 96/44, International Monetary Fund.
  11. Gordon de Brouwer & Neil R. Ericsson, 1995. "Modelling inflation in Australia," International Finance Discussion Papers 530, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  12. Mathieson, Donald J & Haas, Richard D, 1994. "Establishing Monetary Control in Financial Systems With Insolvent Institutions," IMF Papers on Policy Analysis and Assessments 94/10, International Monetary Fund.
  13. Dhakal, Dharmendra & Kandil, Magda, 1993. "The Inflationary Experiences of Six Developing Countries in Asia: An Investigation of Underlying Determinants," Applied Economics, Taylor and Francis Journals, vol. 25(3), pages 413-25, March.
  14. Brunello Giorgio & Ariga Kenn & Nishiyama Yoshihiko & Ohkusa Yasushi, 1995. "Recent Changes in the Internal Structure of Wages and Employment in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 9(2), pages 105-129, June. [Downloadable!] (restricted)
  15. McNown, Robert & S. Wallace, Myles, 1989. "National price levels, purchasing power parity, and cointegration: a test of four high inflation economies," Journal of International Money and Finance, Elsevier, vol. 8(4), pages 533-545, December. [Downloadable!] (restricted)
  16. Brian R. Horrigan, 1986. "Monetary indicators, commodity prices, and inflation," Working Papers 86-7, Federal Reserve Bank of Philadelphia.
  17. Hansen, Bruce E., 1992. "Testing for parameter instability in linear models," Journal of Policy Modeling, Elsevier, vol. 14(4), pages 517-533, August. [Downloadable!] (restricted)
  18. Augustine C. Arize, 1990. "Effects Of Financial Innovations On The Money Demand Function: Evidence From Japan," International Economic Journal, Korean International Economic Association, vol. 4(1), pages 59-70, April. [Downloadable!] (restricted)
  19. Miller, Stephen M, 1991. "Monetary Dynamics: An Application of Cointegration and Error-Correction Modeling," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 139-54, May. [Downloadable!] (restricted)
  20. Darrat, Ali F., 1985. "The demand for money in a developing economy: The case of Kenya," World Development, Elsevier, vol. 13(10-11), pages 1163-1170. [Downloadable!] (restricted)
  21. E. P. Davis & S. G. B. Henry, 1994. "The Use of Financial Spreads as Indicator Variables: Evidence for the U.K. and Germany," IMF Working Papers 94/31, International Monetary Fund.
  22. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254. [Downloadable!] (restricted)
  23. Friedman, Benjamin M & Kuttner, Kenneth N, 1992. "Money, Income, Prices, and Interest Rates," American Economic Review, American Economic Association, vol. 82(3), pages 472-92, June. [Downloadable!] (restricted)
  24. Ericsson, Neil R., 1992. "Cointegration, exogeneity, and policy analysis: An overview," Journal of Policy Modeling, Elsevier, vol. 14(3), pages 251-280, June. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Kibritcioglu, Aykut, 2002. "Excessive Risk-Taking, Banking Sector Fragility, and Banking Crises," Working Papers 02-0114, University of Illinois at Urbana-Champaign, College of Business. [Downloadable!]
  2. Honohan, Patrick, 2001. "Recapitalizing banking systems : implications for incentives and fiscal and monetary policy," Policy Research Working Paper Series 2540, The World Bank. [Downloadable!]
  3. Alicia García Herrero & Pedro del Río López, 2003. "Implications of the design of monetary policy for financial stability," Macroeconomics 0304008, EconWPA. [Downloadable!]
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