How Interest Rates Changed under Financial Liberalization : A Cross-Country Review
Financial liberalization was expected to make interest rates, and asset prices more volatile, with distributional consequences, such as reduced, or relocated rents, and increased competition in financial services. The author examines available data...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2000/04/437851/interest-rates-changed-under-financial-liberalization-cross-country-review http://hdl.handle.net/10986/18833 |
| Summary: | Financial liberalization was expected to
make interest rates, and asset prices more volatile, with
distributional consequences, such as reduced, or relocated
rents, and increased competition in financial services. The
author examines available data on money market, and bank
interest rates for evidence of whether these things
happened. He shows that as more and more countries
liberalized, the level and dynamic behavior of
developing-country interest rates converged to
industrial-country norms. In the short term, volatility
increased in both real, and nominal money market interest
rates. Treasury bill rates, and bank spreads, evidently the
most repressed, showed the greatest increase as
liberalization progressed - shifting substantial rents from
the public sector, and from favored borrowers. Whereas
quoted bank spreads in industrial countries contracted
somewhat in the late 1990s, spreads in developing countries
remained much higher, presumably reflecting both market
power, and the higher risks of lending in the developing
world. There was no clear-cut change in mean rates of
inflation, monetary depth, or GDP growth. If anything, there
was a small average improvement in inflation, but a decline
in monetary depth, and economic growth, relative to trends
in industrial countries. |
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