Interdependence of the banking sector and the real sector: evidence from OECD countries

Abstract

This article investigates the validity of the credit view hypothesis in eleven OECD (Organization for Economic Cooperation and Development) countries over the period 1987:QI to 2003:QIII. The existence of a long-run relationship between the banking sector and the real sector is supported by cointegration test results. For some of the countries in the sample, Granger causality tests show the leading role of the banking sector in the real sector, thus supporting the credit view hypothesis, whereas for other countries, the same tests indicate no interdependence.

Notes

¹ See Diamond (1984), Bernanke and Gertler (1987), Williamson (1987), Holmstrom and Tirole (1997), Chen (2001) and Levine (2005).

² See Lown (1988, 1990), Fackler (1990), Gunther and Moore (1993), Thornton (1994), Gunther et al . (1995), Jeong et al . (2003), Bates (2005) and Shan (2005).

³ Lags between 1 and 20 were checked, and the lag that minimized the Akaike Information Criterion (AIC) was chosen when performing the ADF test. The Newey–West bandwidth automatic selection was used when performing the PP unit root test.

⁴ The Schwarz Criterion (SC) is also used in conjunction with AIC for the sake of confirmation. No contradiction is observed between AIC and SC; both point to the same lag choices.

⁵ Although, sample periods partially overlap, our results are consistent with the findings of Anari et al . (2002) for Finland.

⁶ We obtained the deficit data from the International Financial Statistics (IFS) Online Service of the International Monetary Fund.