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The Credit Crunch in East Asia: What can Bank Excess Liquid Assets Tell us?

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Listed author(s):
  • P.R. Agenor
  • J. Aizenman
  • A. Hoffmaister

Abstract

The paper proposes a two-step approach to 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 is based on the estimation of a demand function for excess liquid assets by commercial banks. Such a function is derived analytically in the first part of the paper. The second step consists in establishing dynamic projections for the periods following the crisis and assessing whether or not residuals are large enough to be viewed as indicators of involuntary' accumulation of excess reserves. Results for Thailand indicate that the contraction in bank lending that accompanied the crisis was the result of supply factors.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7951.

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Date of creation: Oct 2000
Publication status: published as Agenor, Pierre-Richard, Joshua Aizenman and Alexander W. Hoffmaister. "The Credit Crunch In East Asia: What Can Bank Excess Liquidity Assets Tell Us?," Journal of International Money and Finance, 2004, v23(1,Feb), 27-49.
Handle: RePEc:nbr:nberwo:7951
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  • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
  • F31 - International Economics - - International Finance - - - Foreign Exchange

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  1. 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.
  2. Pierre-Richard Agénor & Joshua Aizenman, 1998. "Contagion and Volatility with Imperfect Credit Markets," IMF Staff Papers, Palgrave Macmillan, vol. 45(2), pages 207-235, June.
  3. Mishkin, Frederic S., 1999. "Lessons from the Asian crisis," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 709-723, August.
  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. 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.
  6. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-856, July.
  7. 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.
  8. Granger, C. W. J. & Newbold, Paul, 1986. "Forecasting Economic Time Series," Elsevier Monographs, Elsevier, edition 2, number 9780122951831 edited by Shell, Karl.
  9. 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.
  10. 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.
  11. Baltensperger, Ernst, 1980. "Alternative approaches to the theory of the banking firm," Journal of Monetary Economics, Elsevier, vol. 6(1), pages 1-37, January.
  12. I. Domac & G. Ferri, 1999. "Did the East Asian Crisis Disproportionately Hit Small Businesses in Korea?," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 28(3), pages 403-429, November.
  13. 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.
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