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Other financial corporations: Cinderella or ugly sister of empirical monetary economics?

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  • K. Alec Chrystal

    (Cass Business School, London, UK)

  • Paul Mizen

    (University of Nottingham, UK)

Abstract

This paper reports estimates of an econometric model of the determinants of OFCs' broad money holding and M4 lending to OFCs. This is of interest both as providing information about a component of UK money and credit aggregates and because it provides some evidence of the link between financial activity and growth of the real economy. We model the long-run equilibria for money holding and lending to this sector as being driven by GDP, wealth, the return to financial services and various interest spreads. The dynamics of OFCs' money and lending are shown to be interdependent. We then consider the evidence for interactions between OFCs and other sectors. Our results indicate that M4 lending to OFCs is significantly related to aggregate investment in the long run, but is largely unrelated to the spending of households. Copyright © 2005 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/ijfe.258
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 10 (2005)
Issue (Month): 1 ()
Pages: 63-80

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Handle: RePEc:ijf:ijfiec:v:10:y:2005:i:1:p:63-80

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References

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  1. Aubhik Khan, 1999. "Financial development and economic growth," Working Papers 99-11, Federal Reserve Bank of Philadelphia.
  2. Olivier Jean Blanchard & Danny Quah, 1990. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
  3. Bardsen, G. & Fisher, P.G., 1993. "The Importance of Being Structured," Papers 02-93, Norwegian School of Economics and Business Administration-.
  4. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  5. Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-28, August.
  6. Arestis, Philip & Demetriades, Panicos O, 1997. "Financial Development and Economic Growth: Assessing the Evidence," Economic Journal, Royal Economic Society, vol. 107(442), pages 783-99, May.
  7. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  8. Drake, Leigh & Chrystal, K Alec, 1994. "Company-Sector Money Demand: New Evidence on the Existence of a Stable Long-Run Relationship for the United Kingdom," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(3), pages 479-94, August.
  9. K Alec Chrystal & Paul Mizen, 2001. "Consumption, money and lending: a joint model for the UK household sector," Bank of England working papers 134, Bank of England.
  10. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (S (ed.), Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084 Central Bank of Chile.
  11. Paul Harrison & Oren Sussman & Joseph Zeira, 1999. "Finance and growth: theory and new evidence," Finance and Economics Discussion Series 1999-35, Board of Governors of the Federal Reserve System (U.S.).
  12. Ryland Thomas, 1997. "The Demand for M4: A Sectoral Analysis. Part 1 - The Personal Sector," Bank of England working papers 61, Bank of England.
  13. Andrew Brigden & Paul Mizen, 1999. "Money, credit and investment in UK corporate sector," Bank of England working papers 100, Bank of England.
  14. Søren Johansen & Katarina Juselius, 1992. "Identification of the Long-Run and the Short-Run Structure: An Application to the ISLM Model," Discussion Papers 92-04, University of Copenhagen. Department of Economics.
  15. Scott, Alasdair, 2003. "APPLIED MACROECONOMETRICS Carlo A. Favero Oxford University Press, 2001," Macroeconomic Dynamics, Cambridge University Press, vol. 7(02), pages 313-315, April.
  16. Drake, Leigh & Chrystal, K Alec, 1997. "Personal Sector Money Demand in the UK," Oxford Economic Papers, Oxford University Press, vol. 49(2), pages 188-206, April.
  17. Ryland Thomas, 1997. "The Demand for M4: A Sectoral Analysis Part 2 The Corporate Sector," Bank of England working papers 62, Bank of England.
  18. Boswijk, H. Peter, 1995. "Efficient inference on cointegration parameters in structural error correction models," Journal of Econometrics, Elsevier, vol. 69(1), pages 133-158, September.
  19. Barr, David G & Cuthbertson, Keith, 1991. "An Interdependent Error Feedback Model of UK Company Sector Asset Demands," Oxford Economic Papers, Oxford University Press, vol. 43(4), pages 596-611, October.
  20. Barr, D G & Cuthbertson, K, 1992. "A Data Based Simulation Model of the Financial Asset Decisions of UK, 'Other' Financial Intermediaries," Scottish Journal of Political Economy, Scottish Economic Society, vol. 39(3), pages 241-60, August.
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Cited by:
  1. Giuseppe Ferrero & Andrea Nobili & Patrizia Passiglia, 2007. "The sectoral distribution of money supply in the Euro area," Temi di discussione (Economic working papers) 627, Bank of Italy, Economic Research and International Relations Area.
  2. Chrystal, Alec & Mizen, Paul, 2002. "Modelling credit in the transmission mechanism of the United Kingdom," Journal of Banking & Finance, Elsevier, vol. 26(11), pages 2131-2154, November.
  3. Annick Bruggeman & Marie Donnay, 2003. "A monthly monetary model with banking intermediation for the euro area," Working Paper Series 264, European Central Bank.

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