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
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
. (Citation2002) for Finland.
6 We obtained the deficit data from the International Financial Statistics (IFS) Online Service of the International Monetary Fund.
Diamond
,
DW
.
1984
.
Financial intermediation and delegated monitoring
.
The Review of Economic Studies
,
51
:
393
–
414
.
Bernanke
,
BS
and
Gertler
,
M
.
1987
.
“
Banking and macroeconomic equilibrium
”
. In
New Approaches to Monetary Economics
,
Edited by:
Barnett
,
W
and
Singleton
,
K
.
89
–
110
.
New York
:
Cambridge University Press
.
Williamson
,
SD
.
1987
.
Financial intermediation, business failures, and real business cycles
.
Journal of Political Economy
,
95
:
1196
–
216
.
Holmstrom
,
B
and
Tirole
,
J
.
1997
.
Financial intermediation, loanable funds, and the real sector
.
The Quarterly Journal of Economics
,
112
:
663
–
91
.
Chen
,
N
.
2001
.
Bank net worth, asset prices and economic activity
.
Journal of Monetary Economics
,
48
:
415
–
36
.
Levine
,
R
.
2005
.
“
Finance and growth: theory and evidence
”
. In
Handbook of Economic Growth
,
Edited by:
Aghion
,
P
and
Durlauf
,
S
.
865
–
934
.
The Netherlands
:
Elsevier Science
.
Lown
,
CS
.
1988
.
The credit-output link vs. the money-output link: new evidence
.
Economic Review, Federal Reserve Bank of Dallas
,
November
:
1
–
10
.
Lown
,
CS
.
1990
.
Banking and the economy: What are the facts? Economic Review
.
Federal Reserve Bank of Dallas
,
September
:
1
–
14
.
Fackler
,
JS
.
1990
.
Federal credit, private credit, and economic activity
.
Journal of Money, Credit and Banking
,
22
:
444
–
64
.
Gunther
,
JW
and
Moore
,
RR
.
1993
.
The long-run relationship between bank capital and lending
.
Financial Industry Studies, Federal Reserve Bank of Dallas
,
3
:
1
–
16
.
Thornton
,
DL
.
1994
.
Financial innovation, deregulation and the ‘Credit view’ of monetary policy
.
Federal Reserve Bank of St. Louis Review
,
76
:
31
–
49
.
Gunther
,
JW
,
Lown
,
CS
and
Robinson
,
KJ
.
1995
.
Bank credit and economic activity: evidence from the Texas banking decline
.
Journal of Financial Services Research
,
9
:
31
–
48
.
Jeong
,
W
,
Kymn
,
KO
and
Kymn
,
CJ
.
2003
.
The long-run interdependence of bank-health, investment-oriented bank loans, and economic performance: a time-series analysis
.
The Quarterly Review of Economics and Finance
,
43
:
11
–
30
.
Bates
,
S
.
2005
.
Global measure of causal intensity between real and financial spheres
.
Applied Economics
,
37
:
1635
–
42
.
Shan
,
J
.
2005
.
Does financial development ‘lead’economic growth? A vector auto-regression appraisal
.
Applied Economics
,
37
:
1353
–
67
.
Anari
,
A
,
Kolari
,
J
,
Pynnönen
,
S
and
Suvanto
,
A
.
2002
.
Further evidence on the credit view: the case of Finland
.
Applied Economics
,
34
:
267
–
78
.