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Inflation and Financial Depth
Author:
Mr. Mohsin S. Khan
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Mr. Abdelhak S Senhadji
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Mr. Bruce D. Smith null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2001: Issue 044
Language:
English
Publication Date:
01 Apr 2001
DOI:
https://doi.org/10.5089/9781451846416.001
ISBN:
9781451846416
ISSN:
1018-5941
Pages:
31
Keywords:
WP; rate of inflation; financial market; credit rationing; credit market
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund