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Implications of Excess Liquidity in Fiji’s Banking System: An Empirical Study

Author

Listed:
  • Jayaraman, T.K.
  • Choong, Chee-Keong

Abstract

The reasons behind the frequent occurrences of excess liquidity, especially in the recent months since 2007, are well known and documented. They include low investor confidence following the military coups and related political uncertainties with their lingering effects for a while. What are unknown and not studied in detail are the long term effects of excess liquidity on various key economic variables. Utilizing the VAR methodology, this paper examines the effects of excess liquidity on loans, lending rate, exchange rate and price level. The findings are that excess liquidity is a major component of forecast variation in loans, exchange rate and lending rate.

Suggested Citation

  • Jayaraman, T.K. & Choong, Chee-Keong, 2012. "Implications of Excess Liquidity in Fiji’s Banking System: An Empirical Study," MPRA Paper 43505, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:43505
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    References listed on IDEAS

    as
    1. Tarron Khemraj, 2008. "Excess liquidity, oligopolistic loan markets and monetary policy in LDCs," Working Papers 64, United Nations, Department of Economics and Social Affairs.
    2. Agenor, Pierre-Richard & Aizenman, Joshua & Hoffmaister, Alexander W., 2004. "The credit crunch in East Asia: what can bank excess liquid assets tell us?," Journal of International Money and Finance, Elsevier, vol. 23(1), pages 27-49, February.
    3. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
    4. Tarron Khemraj, 2007. "What does excess bank liquidity say about the loan market in Less Developed Countries?," Working Papers 60, United Nations, Department of Economics and Social Affairs.
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    More about this item

    Keywords

    Excess liquidity; loans; monetary policy; cointegration test; variance decomposition;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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