How excessive endogenous money supply can contribute to global financial crises

This paper examines the long-term effect of various regulatory, bank-specific and macroeconomic factors on the determination of liquidity in Indian banks. For this purpose, the study uses a random effect panel data regression model and tests it with data on Indian banks for 21 years, covering the period from 1996 to 2016. The model considers the effect of regulatory factors, cash reserve ratio, and statutory liquidity, and incorporates four different liquidity ratios specific to the Indian banking scenario. The results of the analysis show contrasting relationships between the independent variables and the dependent variables measured by four liquidity ratios.
It is interesting to note that Indian banks rely more on asset-based liquidity and less on liability-based liquidity. More specifically, the most important liquidity ratio of L1 (liquid assets to total assets ratio) showed a significant relationship with macroeconomic variables of discount rates, call rates, foreign exchange reserve, exchange rate with US dollar, consumer price index and gross domestic product. L1 also showed a significant relationship with bank-specific variables of capital to total assets and bank size. However, the regulatory factors of cash reserve ratio and profitability determined by return on equity (ROE) and non-performing assets were not found to have any effect on liquidity of Indian banks.

The article analyzes the influence of inflation on economic growth and substantiates the main directions of increasing the effectiveness of the central bank's anti-inflation policy.
In order to determine the limit of inflation, the excess of which has a negative impact on the economic growth, the relationship is analyzed between the inflation rate and the real GDP growth rate on the basis of IMF statistics using the example of 158 countries. It was determined that in 2010–2017, in the global economy, the 6.0% inflation was the marginal value of the inflation rate, beyond which the economic growth rate declined or slowed down.
Given the inverse relationship between the inflation rate and the real GDP growth rates as well as empirical calculations for the period 1996–2017, the threshold for inflation rate for Ukraine at the level of 4.51% was determined based on empirical calculations for the 1996–2017 period. The results indicate that the National Bank of Ukraine set the inflation target above the level of the calculated threshold inflation.
It has also been established that the link between the rates of nominal GDP growth, as opposed to real GDP, and the inflation rate, is more direct and more tight. It is substantiated that to analyze such dependence it is better to use GDP deflator instead of CPI. The results indicate that deflation constrains economic growth much less than inflation.
In order to increase the effectiveness of the central bank’s pro-cyclical monetary policy aimed at supporting economic growth, the relationship between the rates of real GDP growth and the indicator characterizing the gap between the growth rates of M3 and inflation, which actually reflects the real money supply dynamics, is determined. The results obtained allowed to conclude that in 2009 and 2014-2017, the artificial “squeezing” of the money supply took place in Ukraine, resulting in a decrease in the level of the economy monetization by 22.0% in 2017 compared to 2013.
It has been proved that in order to minimize the negative impact of inflationary processes on economic growth, the policy of the National Bank of Ukraine should be aimed at eliminating the artificial squeezing of the money supply through a reasonable increase in the economy monetization and the implementation of an effective monetary policy.

This paper sheds light on the financial crisis of 2008–2010 in eleven emerging Eastern European economies (EE11): Armenia, Azerbaijan, Belarus, Bulgaria, Georgia, Kazakhstan, the Kyrgyz Republic, Moldova, Romania, Tajikistan and Ukraine. The aim is twofold. In the first place it seeks to find out if the financial instability hypothesis, as put forward by Minsky and Kindleberger, is a valid explanatory factor for the crisis. Secondly, it tries to map if general institutional frameworks of these countries were developed in order to stand against the factors leading into the financial crisis.
To answer these research problems the paper maps cycles of three parameters representing the real economy, i.e. gross domestic product, manufacturing output and unemployment and four parameters representing the financial markets, i.e. money supply, credit volumes, inflation and government debt. The cycle approach is carried out with the help of a structural time series analysis to isolate cycles in time series. The paper concludes that there were substantial positive financial cycles previous to the financial crisis mirrored by similar cycles in the real economy.
Similarly, the results show negative cycles in the same parameters during the years of crisis. It seems that an uncontrolled increase in money and credit caused the economy to overheat and thereafter contract into financial and real economy crises.
Also, the paper compiles twelve different indices of institutional development. These are standardized and presented in an institutional development matrix, showing that the general institutional framework for the eleven economies was weak previous to and under the meltdown of the economies.
The construction of an integrated institutional development index on the basis of the same twelve parameters confirms institutional shortcomings, which may have made the economies less able to guard themselves from a crisis initiated by both domestically and internationally financial instability.