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The Credit Squeeze During Russia's Early Transition: A Bank-Based View

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  • Schoors, Koen

Abstract

Russia's early transition is characterised by one of the most dramatic credit expansions and inflation experiences in recent history. As a consequence, Russia has been involved in a protracted inflation stabilisation effort. This paper addresses the question whether the inflation stabilisation might have caused a credit squeeze and hence might have contributed to the output collapse in the first three years of transition. Russian monetary policy was certainly not restrictive as a whole, but still the occurrence of a credit crunch is not excluded. Indeed, the lending channel of monetary policy transmission might have caused a credit crunch in Russia. To analyse Russia's monetary stance from the point of view of the lending channel, we perform an empirical analysis of Russian bank liquidity in 1994 on the basis of bank data. The paper concludes that the huge excess reserves of Russian banks in 1994 were at least partially due to excess liquidity in the banking system. This means that banks preferred to hold liquidity rather than to grant loans. The hypothesis that the credit crunch is due to the lending channel of monetary policy transmission is therefore rejected. The question why banks preferred to hold excess liquidity deserves further attention. This question is still relevant, because Russian commercial banks have again accumulated excess reserves in 1999 and decreased their lending to the economy, in the aftermath of the banking crisis, triggered by the August-1998 crisis.

Suggested Citation

  • Schoors, Koen, 1999. "The Credit Squeeze During Russia's Early Transition: A Bank-Based View," CEPR Discussion Papers 2229, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2229
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    Cited by:

    1. Claeys, Sophie & Schoors, Koen, 2007. "Bank supervision Russian style: Evidence of conflicts between micro- and macro-prudential concerns," Journal of Comparative Economics, Elsevier, vol. 35(3), pages 630-657, September.
    2. Alexei Karas & William Pyle & Koen Schoors, 2006. "Sophisticated Discipline in Nascent Deposit Markets: Evidence from Post-Communist Russia," William Davidson Institute Working Papers Series wp829, William Davidson Institute at the University of Michigan.
    3. Karas, Alexei & Pyle, William & Schoors, Koen, 2006. "Sophisticated discipline in a nascent deposit market : evidence from post-communist Russia," BOFIT Discussion Papers 13/2006, Bank of Finland, Institute for Economies in Transition.
    4. Alexei Karas & Koen Schoors & Laurent Weill, 2010. "Are private banks more efficient than public banks?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 18(1), pages 209-244, January.
    5. Kim, Byung-Yeon & Pirttila, Jukka, 2004. "Money, barter, and inflation in Russia," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 297-314, June.
    6. S. CLAEYS & G. LANINE & K. SCHOORs, 2005. "Bank Supervision Russian Style: Rules vs Enforcement and Tacit Objectives," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/307, Ghent University, Faculty of Economics and Business Administration.
    7. Alexei Karas & William Pyle & Koen Schoors, 2010. "How do Russian depositors discipline their banks? Evidence of a backward bending deposit supply function," Oxford Economic Papers, Oxford University Press, vol. 62(1), pages 36-61, January.
    8. Alexei Karas & William Pyle & Koen Schoors, 2009. "The Effect of Deposit Insurance on Market Discipline:Evidence from a Natural Experiment on Deposit Flows," Middlebury College Working Paper Series 0905, Middlebury College, Department of Economics.
    9. Claeys, Sophie & Lanine, Gleb & Schoors, Koen, 2005. "Bank supervision Russian style : rules versus enforcement and tacit objectives," BOFIT Discussion Papers 10/2005, Bank of Finland, Institute for Economies in Transition.
    10. David M. Kemme, 2000. "Russian Financial Transition: The Development of Institutions and Markets for Growth," William Davidson Institute Working Papers Series 455, William Davidson Institute at the University of Michigan.
    11. Mario Gara, 2001. "The Emergence of Non-monetary Means of Payment in the Russian Economy," Post-Communist Economies, Taylor & Francis Journals, vol. 13(1), pages 5-39.
    12. Schoors, Koen, 2003. "The effect of Soviet monetary disintegration on the collapse of trade between members of the Commonwealth of Independent States," Economic Systems, Elsevier, vol. 27(1), pages 1-26, March.
    13. Alexei Karas & William Pyle & Koen Schoors, 2013. "Deposit Insurance, Banking Crises, and Market Discipline: Evidence from a Natural Experiment on Deposit Flows and Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(1), pages 179-200, February.

    More about this item

    Keywords

    Bank Liquidity; Early Transition; Lending Channel ; Russia;

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • P50 - Economic Systems - - Comparative Economic Systems - - - General

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