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The impact of banking crises on money demand and price stability

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  • Martinez Peria, Maria Soledad

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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Bibliographic Info

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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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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Cited by:
  1. Aykut Kibritcioglu, 2002. "Monitoring Banking Sector Fragility," Macroeconomics 0206004, EconWPA, revised 05 Apr 2004.
  2. Sánchez-Fung, José R., 2008. "The day-to-day interbank market, volatility, and central bank intervention in a developing economy," MPRA Paper 15648, University Library of Munich, Germany.
  3. Honohan, Patrick, 2001. "Recapitalizing banking systems : implications for incentives and fiscal and monetary policy," Policy Research Working Paper Series 2540, The World Bank.
  4. Bowo Setiyono & Amine Tarazi, 2014. "Disclosure, ownership structure and bank risk: Evidence from Asia," Working Papers hal-00947590, HAL.
  5. 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.
  6. Alicia García Herrero & Pedro del Río López, 2003. "Implications of the design of monetary policy for financial stability," Macroeconomics 0304008, EconWPA.
  7. Luis Ignacio Jácome, 2008. "Central Bank Involvement in Banking Crises in Latin America," IMF Working Papers 08/135, International Monetary Fund.

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