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Credit Supply and Demand and Business Investment

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  • Adrian Blundell‐Wignall
  • Marianne Gizycki

Abstract

The article explores the lending behaviour of financial intermediaries over the business cycle in the light of theories emphasising agency costs. During a credit crunch loans from financial intermediaries are unobtainable at any price, and so credit may have a causal influence over economic activity. Tests of this do not find evidence of credit constraints following financial deregulation. However, since both loan supply and demand are driven by forward‐looking variables, business credit is a useful leading indicator of nominal investment.

Suggested Citation

  • Adrian Blundell‐Wignall & Marianne Gizycki, 1994. "Credit Supply and Demand and Business Investment," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 27(1), pages 101-113, January.
    • Handle: RePEc:bla:ausecr:v:27:y:1994:i:1:p:101-113
    DOI: 10.1111/j.1467-8462.1994.tb00827.x
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    References listed on IDEAS

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    1. Anthony J. Richards, 1991. "The Cost of Equity Capital in Australia: What Can We Learn from International Equity Returns?," RBA Research Discussion Papers rdp9107, Reserve Bank of Australia.
    2. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    3. Bruce C. Greenwald & Joseph E. Stiglitz, 1990. "Macroeconomic Models with Equity and Credit Rationing," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 15-42, National Bureau of Economic Research, Inc.
    4. Philip Lowe & Thomas Rohling, 1992. "Loan Rate Stickiness: Theory and Evidence," RBA Research Discussion Papers rdp9206, Reserve Bank of Australia.
    5. Adrian Blundell-Wignall & Marianne Gizycki, 1992. "Credit Supply and Demand and the Australian Economy," RBA Research Discussion Papers rdp9208, Reserve Bank of Australia.
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