Inflation Risk and Portfolio Allocation in the Banking System
This paper proposes theory and evidence on the relationship between inflation and the bank's portfolio allocation. The proposed idea rationalized what Rodriguez (1992) pointed out with respect to the Central Bank of Argentina, behaving as a "borrower of first resort", where banks reallocated their investment from the private sector to government bonds. A main component of inflation costs is the misallocation of resources, this paper shows a channel through the reallocation of credits, where the credit market for the private sector trend to disappear. Theoretically, this paper studies the behavior of risk-neutral financiers in a world in which monitoring costs, and limited liability on the part of firms leads to credit rationing equilibria. In light of the well established relation between inflation and changes in relative prices, the theoretical model rationalizes the relationship between inflation and the allocation of capital in the banking system. Empirically, it looks at the dynamic behavior of the composition of bank's assets in Argentina between 1983 and 1998, which shows a robust relationship between relative price variability and bank's allocation in government denominated assets.
|Date of creation:||Dec 2000|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (5411) 6314-3000
Fax: (5411) 4314-1654
Web page: http://www.cema.edu.ar/publicaciones/doc_trabajo.html
More information through EDIRC
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.:
- Guy Debelle & Owen Lamont, 1996.
"Relative Price Variability and Inflation: Evidence from US Cities,"
NBER Working Papers
5627, National Bureau of Economic Research, Inc.
- Debelle, Guy & Lamont, Owen, 1997. "Relative Price Variability and Inflation: Evidence from U.S. Cities," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 132-52, February.
- Edwards, Sebastian & Vegh, Carlos A., 1997.
"Banks and macroeconomic disturbances under predetermined exchange rates,"
Journal of Monetary Economics,
Elsevier, vol. 40(2), pages 239-278, October.
- Sebastian Edwards & Carlos A. Végh, 1997. "Banks and Macroeconomic Disturbances Under Predetermined Exchange Rates," CEMA Working Papers: Serie Documentos de Trabajo. 115, Universidad del CEMA.
- Sebastian Edwards & Carlos A. Vegh, 1997. "Banks and Macroeconomics Disturbances under Predetermined Exchange Rates," NBER Working Papers 5977, National Bureau of Economic Research, Inc.
- Carlos A. Rodríguez, 1992. "Financial Reforms in Latin America: The Cases of Argentina, Chile and Uruguay," CEMA Working Papers: Serie Documentos de Trabajo. 84, Universidad del CEMA.
- Mankiw, N Gregory, 1986.
"The Allocation of Credit and Financial Collapse,"
The Quarterly Journal of Economics,
MIT Press, vol. 101(3), pages 455-70, August.
- Bernanke, Ben & Gertler, Mark, 1990.
"Financial Fragility and Economic Performance,"
The Quarterly Journal of Economics,
MIT Press, vol. 105(1), pages 87-114, February.
- 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, vol. 100(2), pages 349-89, April.
- Casella, Alessandra & Feinstein, Jonathan S, 1990. "Economic Exchange during Hyperinflation," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 1-27, February.
- Kiguel, Miguel A & Neumeyer, Pablo Andres, 1995. "Seigniorage and Inflation: The Case of Argentina," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 672-82, August.
When requesting a correction, please mention this item's handle: RePEc:cem:doctra:181. 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: (Valeria Dowding)
If references are entirely missing, you can add them using this form.