Page 25 - Azerbaijan State University of Economics

Gorkhmaz Imanov, Ali Ahmadov: Estimation of the Optimal Size of Financial Depth
in Terms of Macro-Stability

Here: ..... – shows weig hts depending on the priorities that regulator attains to
4
1
the purposes ((1) – (4)). The purpose that has highest priority gets =.....= =1/4,
1
4
the second gets =.....= =1/3 and =0.
1
1
3

,.... indicates standard deviation of Y1,.....,Y4 during the period that is analyzed.
1
4
Normalizing standard deviations helps to measure them and conduct arithmetic
operations.

1, … … . , 4, - is the empirical writing of non-linear function of development
indicators of macroeconomic policy purposes.

IV. RESULTS
As can be seen from Graph 1, economic growth speeds up as financial depth grows.
Until loan to GDP ratio reaches 86.5% (optimal point) this indicator positively impacts
economic growth and afterwards negatively. In Azerbaijan loan to GDP ratio reached its
peak of 38.5% in 2015 and afterwards decreased and then stabilized at 38.5% in 2017.

In countries where financial intermediation was weak, economic growth was also
volatile. (Graph 1). Thus, when loan to GDP ratio was 104.4%, volatility was minimum
and then increased. As financial intermediation in Azerbaijan was weak, we can assume
that volatility of the economic growth was high. Results of the research indicates that as
financial intermediation improves (up to optimal point), volatility will decline.

Graph 1: Interaction between financial intermediation and economic growth
and its volatility

6 The 12
optimal
5 level
4 10
3
2 8
1 6
0 Real growth rate of GDP, % Azerbaija The volatility of GDP growth Azerbaija
n (2017)
-1 n (2017) 4
-2
-3 2
-4 The
-5 0 optimal
level
5 15 25 35 45 55 65 75 85 95 105 115 125 135 145 155 165 175 185 195 205 215 225 235 245 255 265 5 15 25 35 45 55 65 75 85 95 105 115 125 135 145 155 165 175 185 195 205 215 225 235 245
Share of private sector loans in GDP, % Share of private sector loans in GDP, %

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