The credit crunch in East Asia: What can bank excess liquid assets tell us?

Pierre Richard Agénor, Joshua Aizenman, Alexander W. Hoffmaister

Research output: Contribution to journalArticlepeer-review

45 Scopus citations

Abstract

The paper proposes a two-step approach to assess the extent to which the fall in credit in crisis-stricken East Asian countries was a supply- or demand-induced phenomenon. The first step is based on the estimation of demand function for excess liquid assets by commercial banks. Such a function is derived analytically in the first part of the paper. The second step consists of establishing dynamic projections for the periods following the crisis and assessing whether or not residuals are large enough to be viewed as indicators of "involuntary" accumulation of excess reserves. Results for Thailand indicate that the contraction in bank lending that accompanied the crisis was the result of supply factors.

Original languageEnglish
Pages (from-to)27-49
Number of pages23
JournalJournal of International Money and Finance
Volume23
Issue number1
DOIs
StatePublished - 1 Feb 2004
Externally publishedYes

Keywords

  • Credit crunch
  • Excess liquid assets
  • Thailand

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