National, Regional, and International Capital Markets: Measurement and Implications for Domestic Financial Fragility
نویسندگان
چکیده
Interest rate based tests and savings-investment correlations disagree on the extent of capital mobility in Pacific Rim economies. The apparent success of several East Asian countries in sterilizing capital inflows has also fueled the controversy. This paper argues that previous studies examining money market rates may be misplacing their focus, since most lending is mediated through (sometimes regulated) banking systems. We forward a simple open-economy macro model, incorporating bank credit. Several predictions of the model are tested. Capital inflows are found to affect bank lending, in certain cases. Rapid expansion of bank lending in the previous two years is also associated with increases in the bank lending-interest rate spread, a proxy for risk. Finally, we assess whether bank lending is an important variable in determining changes in economic activity, specifically investment. The data suggest that the link between money and investment is weaker than the corresponding link involving bank credit. Acknowledgements: Paper prepared for the 6th Annual NEBR East Asian Seminar on Economics, "Regionalism vs. Multilateral Trade Arrangement", June 15-17, Seoul, Korea, organized by Takatoshi Ito and Anne O. Krueger. We thank Data Resources, Inc., and Carton Strong of Morgan Guaranty for providing data, and Hui Miao for research assistance. This research was supported by UCSC faculty research funds. S)))))))))))))))))))))))))))))))))))))) Address for Correspondence: Menzie Chinn, Department of Economics, Social Sciences I, University of California, Santa Cruz, CA 95064. Tel: (408) 459-2079. Fax: (408) 459-5900. Email: [email protected]. 1
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