The Credit Crunch in East Asia: What Can Bank Excess Liquid Assets Tell Us?
University of Manchester - School of Social Sciences
Alexander W. Hoffmaister
International Monetary Fund (IMF) - Research Department
University of California, Santa Cruz - Department of Economics; National Bureau of Economic Research (NBER)
World Bank Policy Research Working Paper No. 2483
A two-step approach is used to assess the extent to which the credit crunch in East Asia was supply- or demand-driven. The results for Thailand suggest that the contraction in bank lending that accompanied the crisis was the result of supply factors.
Agenor, Aizenman, and Hoffmaister propose a two-step approach for 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 involves estimating a demand function for excess liquid assets held by commercial banks.
The second step involves establishing dynamic projections for the periods after the crisis and assessing whether or not residuals are large enough to be viewed as indicators of an "involuntary" accumulation of excess reserves.
The results for Thailand suggest that the contraction in bank lending that accompanied the crisis was the result of supply factors. Thai firms (presumably small and medium-size ones) faced binding constraints in getting access to credit markets after the crisis.
This paper - a product of the Economic Policy and Poverty Reduction Division, World Bank Institute - is part of a larger effort in the institute to understand the macroeconomic effects of credit market imperfections. Pierre-Richard Agenor may be contacted at firstname.lastname@example.org.
Number of Pages in PDF File: 31working papers series
Date posted: December 13, 2004
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