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The credit crunch in East Asia : what can bank excess liquid assets tell us ?

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  • Agenor, Pierre-Richard
  • Aizenman, Joshua
  • Hoffmaister, Alexander

Abstract

The authors propose a two-step approach for assessing the extent to which the fall in credit in crisis-stricken East Asian countries was a supply- or demand-induced phenomenon. The first step involves estimating a demand function for excess liquid assets held by commercial banks. The second step involves establishing dynamic projections for the periods after the crisis and assessing whether or not residuals are large enough to be viewed as indicators of an"involuntary"accumulation of excess reserves. The results for Thailand suggest that the contraction in bank lending that accompanied the crisis was the result of supply factors. Thai firms (presumably small and medium-size ones) faced binding constraints in getting access to credit markets after the crisis.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2483.

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Date of creation: 30 Nov 2000
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Handle: RePEc:wbk:wbrwps:2483

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Keywords: Economic Theory&Research; Banks&Banking Reform; Environmental Economics&Policies; Financial Intermediation; Settlement of Investment Disputes;

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  1. Prisman, Eliezer Z. & Slovin, Myron B. & Sushka, Marie E., 1986. "A general model of the banking firm under conditions of monopoly, uncertainty, and recourse," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 293-304, March.
  2. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July.
  3. Nautz, Dieter, 1998. "Banks' demand for reserves when future monetary policy is uncertain," Journal of Monetary Economics, Elsevier, vol. 42(1), pages 161-183, June.
  4. Atish R. Ghosh & Swart R. Ghosh, 1999. "East Asia in the Aftermath - Was There a Crunch?," IMF Working Papers 99/38, International Monetary Fund.
  5. Baltensperger, Ernst, 1980. "Alternative approaches to the theory of the banking firm," Journal of Monetary Economics, Elsevier, vol. 6(1), pages 1-37, January.
  6. Joshua Aizenman & Pierre-Richard Agénor, 1997. "Contagion and Volatility with Imperfect Credit Markets," IMF Working Papers 97/127, International Monetary Fund.
  7. Swank, Job, 1996. "Theories of the Banking Firm: A Review of the Literature," Bulletin of Economic Research, Wiley Blackwell, vol. 48(3), pages 173-207, July.
  8. Frederic S. Mishkin, 2000. "Lessons from the Asian Crisis," NBER Working Papers 7102, National Bureau of Economic Research, Inc.
  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. Dollar, David & Hallward-Driemeier, Mary, 2000. "Crisis, Adjustment, and Reform in Thailand's Industrial Firms," World Bank Research Observer, World Bank Group, vol. 15(1), pages 1-22, February.
  11. Civcir, Irfan & Parikh, Ashok, 1995. "Multivariate Cointegration Approach to the Determination of Reserves and Bank Credit: A Case Study of Turkey," Bulletin of Economic Research, Wiley Blackwell, vol. 47(1), pages 55-76, January.
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