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The impact of banking crises on money demand and price stability

  • Martinez Peria, Maria Soledad

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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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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  1. repec:imf:imfpdp:9410 is not listed on IDEAS
  2. Ericsson, Neil R., 1992. "Cointegration, exogeneity, and policy analysis: An overview," Journal of Policy Modeling, Elsevier, vol. 14(3), pages 251-280, June.
  3. Kamas, Linda, 1995. "Monetary policy and inflation under the crawling peg: Some evidence from VARs for Colombia," Journal of Development Economics, Elsevier, vol. 46(1), pages 145-161, February.
  4. E. P. Davis & S. G. B. Henry, 1994. "The Use of Financial Spreads As Indicator Variables; Evidence for the U.K. and Germany," IMF Working Papers 94/31, International Monetary Fund.
  5. Miller, Stephen M, 1991. "Monetary Dynamics: An Application of Cointegration and Error-Correction Modeling," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 139-54, May.
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  7. Fullerton, Thomas Jr., 1993. "Inflationary trends in Colombia," Journal of Policy Modeling, Elsevier, vol. 15(4), pages 463-468, August.
  8. Carmen M. Reinhart & Vincent R. Reinhart, 1991. "Output Fluctuations and Monetary Shocks: Evidence from Colombia," IMF Staff Papers, Palgrave Macmillan, vol. 38(4), pages 705-735, December.
  9. Josef Baumgartner & Ramana Ramaswamy, 1996. "Inflation Targeting in the United Kingdom; Information Content of Financial and Monetary Variables," IMF Working Papers 96/44, International Monetary Fund.
  10. Robert Corker, 1990. "Wealth, Financial Liberalization, and the Demand for Money in Japan," IMF Staff Papers, Palgrave Macmillan, vol. 37(2), pages 418-432, June.
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  12. Gordon de Brouwer & Neil R. Ericsson, 1995. "Modelling Inflation in Australia," RBA Research Discussion Papers rdp9510, Reserve Bank of Australia.
  13. Hiroshi Yoshikawa & Yoshiyuki Takeuchi, 1989. "Real Wages and the Japanese Economy," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 7(1), pages 1-40, April.
  14. Ricardo Matte & Patricio Rojas, 1989. "Evolución Reciente del Mercado Monetario y una Estimación de la Demanda por Dinero en Chile," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 26(78), pages 195-216.
  15. Martin Mühleisen, 1995. "Monetary Policy and Inflation Indicators for Finland," IMF Working Papers 95/115, International Monetary Fund.
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  18. Brunello Giorgio & Ariga Kenn & Nishiyama Yoshihiko & Ohkusa Yasushi, 1995. "Recent Changes in the Internal Structure of Wages and Employment in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 9(2), pages 105-129, June.
  19. McNown, Robert & S. Wallace, Myles, 1989. "National price levels, purchasing power parity, and cointegration: a test of four high inflation economies," Journal of International Money and Finance, Elsevier, vol. 8(4), pages 533-545, December.
  20. Brian R. Horrigan, 1986. "Monetary indicators, commodity prices, and inflation," Working Papers 86-7, Federal Reserve Bank of Philadelphia.
  21. David Fielding, 1994. "Money Demand in Four African Countries," Journal of Economic Studies, Emerald Group Publishing, vol. 21(2), pages 3-37, May.
  22. Karatzas, George, 1993. "Government Deficits, Monetization, International Reserve Flows, and Inflation in Selected African Countries," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 46(2-3), pages 201-224.
  23. Luis Oscar Herrera & Rodrigo Vergara, 1992. "Estabilidad de la Demanda de Dinero, Cointegración y Política Monetaria," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 29(86), pages 35-54.
  24. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  25. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  26. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, March.
  27. Hansen, Bruce E., 1992. "Testing for parameter instability in linear models," Journal of Policy Modeling, Elsevier, vol. 14(4), pages 517-533, August.
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