Banking in Economic Stability

The connection between the degree of banking stability and the evolution of inflation is very important to be understood in order to evaluate the relation between banking stability and real output growth. We can adopt the VAR method for the sample of 18 OECD countries to find out the balance between both factors. The results can be proved effective if they are driven in instable period instead of stable periods. It is also observed through various surveys that unstable banking increases the imbalance in output growth of future. Hence it can be concluded that there is no clear connection between banking stability and the real output growth. However this connection can be used to increase real output growth. By the help of Fed forecast errors, banking stability as well as instability put impact on GDP growth in few quarters. In the last period the private sector has taken a large share in complete foreign currency international debt.

This can be more likely to be seen in the developing countries. The effect of this can be seen on bank loan prices. The share of private sector in the debt that is external in the nature put negative and significant effect on the prices of bank loans. The private sectors share the financial stability internationally to a large extent in comparison with the sovereign debt. This effect is neglected and is balanced in the presence of the regimes of fixed exchange that are not compatible with fundamentals of banking sector. The private sector in such kind of cases can take advantage of the distortions of capital market and hence they are taken care of by higher official authorities. This will lead to exposure of the country to instability further in case of finance.

Results further show that gain in financial stability are brought forward from efficient and smart use of funds and depreciate monitoring cost. Two competing approaches of statistical learning and fitness learning are compared to behavior of model foreign exchange market participants. These learning methods are applied on a set of chartist and fundamental rules. It is needed to find out that which learning method is best in terms of replica of exchange rate dynamics. Both learning approach reveal the value of exchange rate in the equilibrium. However only the fitness learning develops the distorted phenomenon. No mechanism is likely to produce unit root process but both generate abnormal distributed returns.

The estimates indicate that empirical covariance between the deficits is always positively observed and is very important in number of the cases. The empirical covariance is close to estimated from open economy and overlapping generation model with the goods capturing the nature of budget deficits. The predicted covariance is produced by shocks which are related closely to internal conditions like that of domestic resources and the policies that are fiscal and also to less extent to external things like terms of trade, world interest rate and real exchange rate. The nature of microeconomics frictions that change sudden cease into output collapse is of academic interest.