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Monetary requirements for financial development

Vol. 26, Iss. 2, FEBRUARY 2020

Received: 17 December 2019

Received in revised form: 9 January 2020

Accepted: 23 January 2020

Available online: 28 February 2020

Subject Heading: MONETARY ACCOMMODATION

JEL Classification: C51, E44, E52, E58, G28

Pages: 349–368

https://doi.org/10.24891/fc.26.2.349

Krinichanskii K.V. Financial University under Government of Russian Federation, Moscow, Russian Federation
kkrin@fa.ru

https://orcid.org/0000-0002-1225-7263

Annenskaya N.E. Financial University under Government of Russian Federation, Moscow, Russian Federation
nannenskaya@gmail.com

https://orcid.org/0000-0002-5452-6978

Subject The study investigates the relationship of financial development and monetary factors, which may be represented with inflation indicators, money aggregate M2 (measured by GDP), differential of interest rates on loans and funds raised by banks, etc.
Objectives The study outlines a theoretical perimeter for analyzing monetary requirements of financial development. Based on empirical data, we show the extent to which the requirements are influential.
Methods To verify the hypothesis, we classify items under study. The relationship of variables is reviewed through regression analysis. The study embraces 21 countries with developed stock markets and 17 emerging markets, covering the time span from 1960 through 2016.
Results We discovered the negative regular relationship between the inflation rate and three financial development metrics, such as bank deposits to GDP, banks assets to GDP, domestic loan for the private sector to GDP.
Conclusions and Relevance Monetary conditions seem to be significant for financial development. Therefore, the economic policy and strategies for the analysis of phenomena should be amended, since they treat financial development as a substantial growth driver. The relationship spotlights possible lines of the policy for enhancing the quality of financial development. Furthermore, the findings can be used to refine approaches to evaluating the impact of financial development on economic growth.

Keywords: financial development, affordability, inflation, monetary policy, Central Bank

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