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Banking, Corporate Finance, and Monetary Policy: An Empirical Perspective

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  • Davis, E Philip

Abstract

Traditional theories of corporate finance and macroeconomics give no independent role to bank credit in real behavior, implicitly assuming perfect capital markets. However, most recent theoretical work in corporate finance stresses capital market imperfections which limit access to finance for certain borrowers. Banks are seen as means to overcome these difficulties, implying a comparative advantage over securities markets, and that bank lending may have real effects. Empirical results at a micro level tend to support many of these theories, based on asymmetric information and incomplete contracts, albeit often also being consistent with other hypotheses. Equally, some progress had been made relating recent developments in banking and corporate finance to macroeconomic developments (the so-called credit channel of monetary transmission). The central banks are showing a greater interest in credit as an indicator and component of the monetary-policy transmission mechanism, partly in the light of this body of research. Copyright 1994 by Oxford University Press.

Suggested Citation

  • Davis, E Philip, 1994. "Banking, Corporate Finance, and Monetary Policy: An Empirical Perspective," Oxford Review of Economic Policy, Oxford University Press, vol. 10(4), pages 49-67, Winter.
  • Handle: RePEc:oup:oxford:v:10:y:1994:i:4:p:49-67
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    Cited by:

    1. Honohan, Patrick*Vittas, Dimitri, 1996. "Bank regulation and the network paradigm : policy implications for developing and transition economies," Policy Research Working Paper Series 1631, The World Bank.
    2. E.P. Davis, 1995. "Financial Fragility in the Early 1990s - What Can Be Learnt from International Experience?," FMG Special Papers sp76, Financial Markets Group.
    3. E.P. Davis, 1998. "Pension Fund Reform and European Financial Markets," FMG Special Papers sp107, Financial Markets Group.
    4. Mads Kieler & Tuomas Saarenheimo, 1998. "Differences in monetary policy transmission? A case not closed," European Economy - Economic Papers 2008 - 2015 132, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.

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