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Credit Supply and Demand and the Australian Economy

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Author Info
Adrian Blundell-Wignall (Reserve Bank of Australia)
Marianne Gizycki (Reserve Bank of Australia)
Abstract

The paper explores the lending behaviour of financial intermediaries over the business cycle in the light of new theories emphasising agency costs. During a "credit crunch" loans from financial intermediaries are unobtainable at any price, so that credit may have a "causal" role in influencing economic outcomes in the short run. Tests of this phenomenon show that it is not supported by the Australian data. However, while credit may not "cause" economic activity it may, nevertheless, have useful leading indicator properties. This is because the demand for credit is based on expectations about future demand as well as the current cost of credit. Indeed, monetary policy operates in part via intertemporal substitution in demand, which is reflected in, though not caused by, the behaviour of credit. These properties of credit are shown to be broadly consistent with Australian data.

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Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp9208.

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Date of creation: Jul 1992
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Handle: RePEc:rba:rbardp:rdp9208

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  1. Carolyn Currie, 2003. "Towards a General Theory of Financial Regulation: Predicting, Measuring and Preventing Financial Crises," Working Paper Series 132, School of Finance and Economics, University of Technology, Sydney. [Downloadable!]
    Other versions:
  2. Nada Oulidi & Laurence Allain, 2009. "Credit Market in Morocco: A Disequilibrium Approach," IMF Working Papers 09/53, International Monetary Fund. [Downloadable!]
  3. Karen Mills & Steve Morling & Warren Tease, 1993. "Balance Sheet Restructuring and Investment," RBA Research Discussion Papers rdp9308, Reserve Bank of Australia. [Downloadable!]
  4. Warren Tease & Jenny Wilkinson, 1993. "The Provision of Financial Services - Trends, Prospects and Implications," RBA Research Discussion Papers rdp9315, Reserve Bank of Australia. [Downloadable!]
  5. Ellis W Tallman & Naveen Chandra, 1996. "The Information Content of Financial Aggregates in Australia," RBA Research Discussion Papers rdp9606, Reserve Bank of Australia. [Downloadable!]
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  6. Philip Lowe & Thomas Rohling, 1992. "Loan Rate Stickiness: Theory and Evidence," RBA Research Discussion Papers rdp9206, Reserve Bank of Australia. [Downloadable!]
  7. Fernando Nieto, 2007. "The determinants of household credit in Spain," Banco de España Working Papers 0716, Banco de España. [Downloadable!]
  8. Philip Lowe & Thomas Rohling, 1993. "Agency Costs, Balance Sheets and the Business Cycle," RBA Research Discussion Papers rdp9311, Reserve Bank of Australia. [Downloadable!]
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