Documentos de Académico
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Y
§
to finance promising projects across sectors.
§
.
|
by pooling it and repackaging.
Ê
by borrowing short-term and lending long-term.
½
matching depositors and investors.
V Further, can be divided into BANK financial intermediaries and NON-BANK financial
intermediaries (such as equity/stock markets).
V Gibson and Tskalotos (1994) notes that even in developed countries w/ developed
equity markets,
. Banks also have
and therefore have
greater access to information.
Y
V
are kept low to try and istortions that make
stimulate investment (which means
that
have to be low as
, hurting
well, as the bank can͛t finance higher financial development.
ones).
½educed savings, investment and
V can be either direct growth, as well as C½ T
or indirect (e.g., requiring a proportion ½ATONNG (Õ |
).
of assets to be held as Government
bonds). There may also be an
Y
V Ñ
Y ½
|
[onohan (2004) supports this claim, noting that, when using Y
(the quantity of money/assets to which a firm/individual has access) as a proxy for
financial development, the link between the two is significant and robust:
Õoving from the lowest decile of financial depth to the highest is associated with a
rise in G§ per capita growth of ~4%.
, which is more of a problem in developing countries than the cost of loans. An
example is
.
Y
|
: Y - ' )
6 (financial
institutions provide financial
services which permits and
.
facilitates growth).
3. Financial development has a
Y
: 6
- Y (real
economic growth raises the
demand for financial services). * for financial
deepening to impact upon the
|
: At early real economy.
stages of development,
. This creates self- + Y
sustaining growth which
instigates
Y§
,
causality. which enhances economic
growth.
Y
V Neoclassical perspective: Y S.
V Y
entails:
V The typical model that is employed to show this, is the Õ |
, shown on the next slide, where the level of savings is variant on
the interest rate and growth rate, and equilibrium is where S. t
considers financial repression where an interest rate ceiling (on lending
rates) has been imposed.
Y
nterest
½ate |"
#&
|"
'&
|"
,&
r3
V¬
¬ r
r* 6 * V¬
Ê Ceiling 2
r2
¬
r1 )
Ceiling 1 À r
1 2 * 3 nvestment
Y
[ere, there are still ͚1͛ levels of [owever, higher yielding projects now
savings in the economy, however go ahead and therefore
V "#$--& offers a two-sector model where the efficacy of investment increases due to
liberalisation:
Traditional sector (with low rate of return on investments, and investments are self-
financed), and Õodern sector (with high rate of return and relies on loans from a bank -
hence, relies on savings from the traditional sector).
V 6
Õ6 for the predictions of the ÕcKinnon-Shaw model, as Gibson
and Tsakalotos (1994) conclude, due to difficulty in obtaining reliable data and
methodological problems.
V ÕcKinnon (1991) argues that there are two pre-requisites for Financial liberalisation:
Y Ê (bank taxes are no longer a revenue source, the Gov. Õust develop the tax
system to compensate).
Ê
for monetary policy purposes.
Y
V Õ
V Can be divided into two camps: the §|66| | (who focus on
) and the 6|½Ê½ || (who focus on
).
V §ost-Keynesian critique:
)
(higher
deposit rates w/ still low lending rates).
͚
Y ½ ͛ where equilibrium interest rates are very low
(perhaps negative in real terms). This means that the bank faces high levels of
uncertainty when lending, however withholding funds reduces profits as the
bank becomes excessively liquid.
Y
V Neo-Structuralist critique:
[
, so aggregate supply declines. Assuming
supply falls faster than demand, then '
suggesting a rise in
inflation.
Assume an individual can store wealth either in non-productive assets (like Gold), or in
the informal market, O½ they can deposit in formal sector banks.
A rise in the deposit rate due to liberalisation leads to a substitution away from the prior 2
stores of wealth -
(thus creating
credit) and
.
* This is because formal sector banks have to have a
reserve requirement; neo-structuralists believe that this effect dominates in developing
countries with large informal money markets.
Y
V Õ § 2. With assets still in domestic currency, asset value
does not also rise -
6 ѽ
V The most significant market failures in the financial
sector are Õ
[( and "
|
.
3. Net worth acts as collateral;
$)
(banks are unable to
Adverse selection arises because of the presence of differentiate between good and bad risks)
͚bad͛ lending risks in the marketplace and the
(
(firms can undertake riskier
inability of the bank to differentiate between behaviour as they have less to lose).
riskiness of investors.
*
Õoral hazard arises because monitoring the use of , creating a BANKNG C½SS.
loaned funds is often costly and difficult to
implement.
5. The usual response to such a crisis is to restrict
lending to increase capital stocks; however, banks
Both lead to less lending and therefore reduce play a key role in emerging markets due to
financial development.
allowing them access to
information curtailing adverse selection, and
V Õ "#$$$& outlines how A.S and Õ.[ problems
preventing moral
can create financial instability and perpetuate crises: hazard.
V merging market debt is likely to be: |½ 6½Õ !
Y½6 ʽ½6Ê 6Õ 6
V
via privatization via fixation on
and liberalisation has two effects: short-term profits and neglect of
long term investments.
V
|
Ê
[owever,
'
(facilitating a lending boom) and
due to its
note that it
&
; if before, then there will be
capital flight due to low real interest
n net, competition could lead to rates and domestic banks will be
in the financial uncompetitive internationally.
system and have an
Y
V Ê
V Y
(and growth causes financial
development).
V
&
V |
Y !
; there needs to be a Government
presence to deal with market failures and potential adverse impacts of
competition. There also needs to be a stable macroeconomic environment, a
shrinking informal money market, and correct sequencing of liberalisation
reforms and introduction of equity markets.
V Ê ile ca e se as a exa le f a fi a cial sect r ig lig te t e str ct ral eakesses f t e refr s,
t at s cc e t
a × / 0 "#$$$& / :
( r se e ci g a
it ri g), a t e
T ere a ee csiera le acc lati f llar-
& eiate e t at c ea iterest rates, icreasig
t e sesitivity f firs t rl iterest rates.
V §re-§i c et (1973), t e Ê ilea fi a cial sect r as
ty ical f t e average ëati erica c try; T e e t crisis (a a fixe exc age rate licy)
lea t a large a reciati f t e §es t t e Dllar,
/
reflecti g Ú
creatig a large eficit a triggerig a fiacial
, ig ly re resse fi a cial sect r c iti s crisis.
a
Ú &
V G 1/ // "#$$*& te t at ilst t ere
T e ver e t rr e fr t e sect r y as a i fiacial e t ( /
×
/ / × t als × //1 /#!(((2#$-,3 %#), it
/ / / / as͛t a efficiecy irveet:
V §
|"'((,& note that a major problem during the build up to the Argentine
financial crisis of 2001 was a structural weakness of the banking sector:
V [owever,
, which
raised the risk of financial collapse if the currency board collapsed.
(Government was running large deficits and had a high interest payments, so
borrowed heavily from the financial sector).
,
they help buy time, but ultimately, a credible lender of last resort is needed. Under a
currency board system, the Central Bank can͛t credibly commit to ëOë½ duties as its priority
is to keep the exchange rate fixed.
V Õ "#$$$& story of a Y
(as that raises the
! value of debtor͛s debt). Speculator͛s will then attack
the currency, triggering a FX crisis: ) ʽ||
Õ #$$* - Yʽ||- ) ʽ||
V ndeed, it is more or less the same story as in Chile; V Õ
Y 5 :
(͚Washington
consensus͛), with
Although financial liberalization is necessary for
! a combination of poor supervision, lending financial development + therefore growth,
booms and FX crisis served to create a financial crisis.
V Õishkin notes the following policy lessons from the
crisis:
(a
measure of financial development), due to the
higher Õ§K in emerging markets as well as more
V
§
opportunities in emerging markets. [owever, this
Fixed regimes are susceptible to speculative attacks
which cause a FX crisis - Financial crisis.
&
They also
͛; a floating V
exchange rate will depreciate if Government
borrowing is too high or inflation is too high, sending
signals to policymakers. nstead of promoting the central bank to be a ëOë½
and pursuing expansionary monetary policies, use
V
§
| context-specific policies.
§oor supervision can foster
The problem w/ ëOë½ + xpansionary monetary
Y : a banking sector policy is that it drives up inflation and thus
with high foreign-denominated debt depreciates the currency (affecting firms͛ net worth
Ê) and prolonging the crisis).
V
½ "'(#(& also argue that Õexico
had
that precluded contract enforcement.
V This exacerbated Adverse Selection problems,
lead to misallocation of resources and acted as a
drag on TF§ growth.
V Thus, in addition to specific financial sector
reforms that Õishkin stated, Õexico needs to
shore up its legal institutions as well to reduce
uncertainty (and transaction costs).