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Money Market Pressure and the Determinants of Banking Crises
Author(s) -
VON HAGEN JÜRGEN,
HO TAIKUANG
Publication year - 2007
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2007.00057.x
Subject(s) - monetary economics , market liquidity , economics , inflation (cosmology) , money market , index (typography) , monetary policy , interest rate , moneyness , financial crisis , exchange rate , financial system , macroeconomics , theoretical physics , world wide web , computer science , physics
This article develops an index of money market pressure to identify banking crises. We define banking crises as periods in which there is excessive demand for liquidity in the money market. We begin with the theoretical foundation of this new method. With the newly defined crisis episodes, we examine the determinants of banking crises using data complied from 47 countries. We find that slowdown of real GDP, lower real interest rates, extremely high inflation, large fiscal deficits, and over‐valued exchange rates tend to precede banking crises. The effects of monetary base growth on the probability of banking crises are negligible.