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This paper investigates the effects of macroeconomic and structural variables on financial intermediation. To this end, it presents a theoretical foundation for two new measures of intermediation, the money multiplier and the ratio of private sector credit to monetary base. Results from panel estimations covering 19 transition economies indicate that policy makers need to address in particular the problems of bad loans on bank balance sheets and high market concentration while maintaining a stable macroeconomic environment. Further variables, such as minimum reserve requirements and the capital adequacy ratio, are found to possess less explanatory power.

Banks and Banking --- Finance: General --- Inflation --- Money and Monetary Policy --- Industries: Financial Services --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Price Level --- Deflation --- Financial Markets and the Macroeconomy --- Monetary economics --- Banking --- Macroeconomics --- Finance --- Monetary base --- Credit --- Financial sector development --- Money --- Prices --- Financial markets --- Nonperforming loans --- Financial institutions --- Money supply --- Banks and banking --- Financial services industry --- Loans --- Estonia, Republic of

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This 1999 Article IV Consultation highlights that real GDP growth of Estonia slowed to 4 percent in 1998. Tighter macroeconomic policies, the decline in the stock market, and banking difficulties in the wake of the Russian crisis in August 1998 dampened domestic consumption and investment. Output growth in early 1999 has remained weak. Overall, the direct impact of the Russian crisis on growth was relatively modest, mainly because Estonia had reoriented most of its trade to the West and the exposure of Estonian banks to Russian financial markets was limited.

Banks and Banking --- Budgeting --- Exports and Imports --- Macroeconomics --- Public Finance --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- National Budget --- Budget Systems --- Current Account Adjustment --- Short-term Capital Movements --- Financial Institutions and Services: Government Policy and Regulation --- Comparison of Public and Private Enterprises and Nonprofit Institutions --- Privatization --- Contracting Out --- National Government Expenditures and Related Policies: General --- Trade: General --- Banking --- International economics --- Budgeting & financial management --- Financial services law & regulation --- Public finance & taxation --- Budget planning and preparation --- Current account deficits --- Commercial banks --- Balance of payments --- Public financial management (PFM) --- Expenditure --- Economic sectors --- Exports --- International trade --- Banks and banking --- Budget --- Asset requirements --- Expenditures, Public --- Estonia, Republic of