Abstract
This paper examines factors determining the allocation of bank credit to the enterprise sector, and the implications of this allocation for aggregate supply and macro-economic performance, in the former socialist economies. It first develops a model to explain how changes in demand for money by the household sector directly influence the availability of working capital, which in turn determines aggregate output and employment. It then examines factors influencing the allocation of bank credit between enterprises and other borrowers, in particular the government. Finally, the paper discusses relative merits of bank finance and equity capital in financing medium- and long-term investment, and constraints on the development of efficient equity markets.
This paper was prepared for The Vienna Institute for Comparative Economic Studies Workshop (Vienna, 21–25 November 1993) on “Transformation of the East European Economies 1989–1993: Critical Assessments and Ways out of the Crisis”. The paper was published in IMF Staff Papers, June 1994. The authors are grateful to Gérard Bélanger, Adrienne Cheasty, Ajai Chopra, Fabrizio Coricelli, Eduard Hochreiter, Mark Lutz, Donald Mathieson, John Odling-Smee and Mark Stone for helpful comments and suggestions, and to Nadine Orosa for excellent research assistance.
Research Department, International Monetary Fund, Washington DC.
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© 1995 Wiener Institut für Internationale Wirtschaftsvergleiche (WIIW) (The Vienna Institute for Comparative Economic Studies)
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Calvo, G.A., Kumar, M.S. (1995). Money Demand, Bank Credit and Economic Performance in the Former Socialist Economies. In: Saunders, C.T. (eds) Eastern Europe in Crisis and the Way Out. European Economic Interaction and Integration. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-13642-1_6
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DOI: https://doi.org/10.1007/978-1-349-13642-1_6
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