Template-Type: ReDIF-Paper 1.0 
Title: The role of fractional-reserve banking in amplifying credit booms: evidence from panel data
Author-Name: Maciej Albinowski 
Abstract: I use panel data on 20 countries to analyze the links between savings(defined as time deposits and savings accounts) and credit extended bybanks. Credit growth is not related to prior changes in savings, at least not inthe short run. This result indicates that the intuition behind the loanablefunds theory does not work well in explaining macroeconomic dynamics.I also find that the share of savings in total deposits is positively affected bycyclical upswings in the GDP, which is consistent with the permanentincome hypothesis. Most interestingly, however, the share of savingsdecreases during credit booms. The existence of such an effect is predictedby the Austrian theory of the business cycle. Based on the above results,I infer that an important disadvantage of fractional-reserve banking isa tendency for the market interest rate to diverge from the natural interestrate. In this paper I also propose a new method of credit boom identificationthat captures the timing of booms more adequately than the procedurescommonly used in the literature.
Number: 2017-024
Length: 31 pages 
Creation-Date: 2017-03
Keywords: loanable funds, deposits, credit booms, fractional-reserve banking
Classification-JEL: E51, E32, E41
File-URL: https://hdl.handle.net/20.500.12182/1152
File-Format: Application/pdf
DOI: 10.33119/kaewps2017024
Handle: RePEc:sgh:kaewps:2017024