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Banks and Output Fluctuations

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  • Carol Scotese Lehr

    ()
    (Department of Economics, VCU School of Business)

Abstract

This paper presents evidence that disturbances originating in the banking sector can generate business cycles. The banking shocks are measured as innovations to the banking sector’s conversion of deposits into loans: a measure of intermediation efficiency. Positive banking efficiency shocks generate a significant positive impact on short-run output growth rates and a negative impact on a version of the spread between short and long term interest rates. The results are robust with respect to alternative calculations of the banking efficiency measure, to identification using short versus long-run restrictions and to other reasonable variations in the identification scheme.

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Bibliographic Info

Paper provided by VCU School of Business, Department of Economics in its series Working Papers with number 0101.

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Length: 32 pages
Date of creation: May 2001
Date of revision:
Handle: RePEc:vcu:wpaper:0101

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Web page: http://www.business.vcu.edu/economics
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  18. Azariadis, Costas & Smith, Bruce, 1998. "Financial Intermediation and Regime Switching in Business Cycles," American Economic Review, American Economic Association, vol. 88(3), pages 516-36, June.
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  20. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
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  23. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
  24. Russell Cooper & Joao Ejarque, 1995. "Financial Intermediation and The Great Depression: A Multiple Equilibrium Interpretation," NBER Working Papers 5130, National Bureau of Economic Research, Inc.
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