The Impact of Banking Crises on Money Demand and Price Stability”, The World Bank Working Paper 2305

1975–98. Cointegration analysis and error correction modeling are used to research two issues: (i) whether money demand stability is threatened by banking crises; and (ii) whether crises lead to structural breaks in the relation between monetary indicators and prices. Overall, no systematic evidence that banking crises cause money demand instability is found. However, the results on price stability are mixed; for three out of the seven countries, there appears to be evidence of instability. [JEL E41, E31, C22] Recent studies reveal that over the last two decades more than 120 countriesexperienced some kind of systemic or nonsystemic banking crisis.1 Systemic episodes typically refer to periods of pervasive bank unsoundness coupled with significant bank runs (or other substantial portfolio shifts), deposit freezes, bank holidays, collapses of financial firms, and/or massive government interventions. Nonsystemic crises refer to periods of extensive bank unsoundness that did not result in any of the events described above