Paradox of excess liquidity in European emerging and transition economies
Paradox of excess liquidity in European emerging and transition economies
Author(s): Albulenë KastratiSubject(s): Economy, Supranational / Global Economy
Published by: Vysoká škola ekonomická v Praze
Keywords: Excess liquidity; emerging economies; banks; European countries
Summary/Abstract: European emerging and transition economies are in immense need of investments and renewal of capital, yet they produce a considerable amount of unutilized resources. In particular, banks hold excess liquidity in the face of seemingly profitable lending opportunities. Is it a demand-side or supply-side problem or is this region entirely different and have we been working under the wrong paradigm? This study creates a new estimate of excess liquidity by taking into account banks’ overall liquidity position. Breaking down precautionary from involuntary excess liquidity, a significant presence of the latter is evident. A part of the story deals with insensitivity of deposits to interest rates. Based on our standard understanding of how banks work, this is puzzling and this study creates a new way to look at this. Using new measures is the way to launch the investigation of causes and policy implications for involuntary excess liquidity.
Journal: Prague Economic Papers
- Issue Year: 31/2022
- Issue No: 1
- Page Range: 79-114
- Page Count: 36
- Language: English