Inflation and Financial Depth

Inflation and Financial Depth

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There is now a substantial theoretical literature arguing that inflation impedes financial deepening. Furthermore, it has been hypothesized that the relationship is a nonlinear one, in that there is a threshold level of inflation below which inflation has a positive effect on financial depth, but above which the effect turns negative. Using a large cross-country sample, empirical support is found for the existence of such a threshold. The estimates indicate that the threshold level of inflation is generally between 3 and 6 percent a year, depending on the specific measure of financial depth that is used.... sector, the volume of bank liabilities outstanding, stock market capitalization and trading volume (all as ratios to GDP), ... defined as domestic credit to the private sector as a share of GDP; (ii)/fe defined asfdi plus stock market capitalizationanbsp;...

Title:Inflation and Financial Depth
Author:Mohsin S. Khan, A. Senhadji Semlali, Bruce D. Smith
Publisher:International Monetary Fund - 2001-04-01


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