Van Wijnbergen, S. (1983). Interest rate management in LDC's Journal of Monetary Economics, 12(3):433--452.


  • Journal
    Journal of Monetary Economics

The McKinnon argument that higher Time Deposit rates raise output and lower inflation in the short run and increase medium-term growth by raising the savings rate are shown to depered crucially on the assumption that portfolio shifts into TD's come out of an asset providing less intermediation than the banking system. We show that if instead the shift is out of an asset providing more intermediation (e.g., loans on a curbmarket), raising TD rates is contractionary in the short run, may have negative impacts on growth and can lead to more rather than less inflation in the short run.