The Role of Implicit Financial Income in Intermediation: What Is Its Attributed Effect a Transition Economy?

Numerous studies have demonstrated the effect of financial repression on the dynamics of banking intermediation, but this remains ambiguous due to phenomena that contradict economic theory. Drawing on data from a transition economy, this book highlights the impact of the implicit financial tax-embodied by income from financial repression and the inflation tax-on the level of banking intermediation. Based on the primary functions of banks-the rate of credit supplied to the economy and the deposit ratio-a multivariate statistical analysis yields insights that differ from previous findings. The results obtained through a VAR (vector autoregressive) model and causal relationships reveal that, in the short term, revenue from financial repression negatively affects savings and the credit-to-GDP ratio. In contrast, the inflation tax has a positive impact on both functions. In the long run, the impact of financial repression revenue is zero on savings and negative on the credit rate. We endeavor to interpret these results through the neoclassical substitution effect and wealth effect.

Pagina's: 52, Paperback, Our Knowledge Publishing