Banking Market Structure and Macroeconomic Stability: Are Low-Income Countries Special?

37 Pages Posted: 21 Jun 2016

See all articles by Franziska Bremus

Franziska Bremus

German Institute for Economic Research (DIW Berlin)

Claudia M. Buch

Deutsche Bundesbank

Date Written: 2014

Abstract

Does the structure of banking markets affect macroeconomic volatility and, if yes, is this link different in low-income countries? Banking markets in low-income countries differ from those in developed market economies. Banking systems in lower-income countries are typically smaller and less open. In this paper, we explore the channels through which the structure of banking markets affects macroeconomic volatility. Our research has three main findings. First, we study the relevance of granular effects: if the degree of market concentration in the banking sector is sufficiently high, idiosyncratic volatility at the bank-level can impact aggregate volatility. We find weak evidence for a link between granular banking sector volatility and macroeconomic fluctuations. Second, a higher share of domestic credit to GDP coincides with higher volatility in the short run. Third, a higher level of cross-border asset holdings, i.e. a higher degree of de facto financial integration, increases volatility in low-income countries.

Keywords: bank market structure, financial integration, granularity, macroeconomic volatility, low-income countries

JEL Classification: G21, E32

Suggested Citation

Bremus, Franziska and Buch, Claudia M., Banking Market Structure and Macroeconomic Stability: Are Low-Income Countries Special? (2014). Bundesbank Discussion Paper No. 46/2014. Available at SSRN: https://ssrn.com/abstract=2797026

Franziska Bremus (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Claudia M. Buch

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
15
Abstract Views
227
PlumX Metrics