Inflation and Financial Depth
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Summary:
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.
Series:
Working Paper No. 2001/044
Subject:
Financial sector development Inflation Market capitalization Stock markets Threshold analysis
English
Publication Date:
April 1, 2001
ISBN/ISSN:
9781451846416/1018-5941
Stock No:
WPIEA0442001
Pages:
31
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