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Credit Supply and Demand and the Australian Economy

Author

Listed:
  • 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.

Suggested Citation

  • Adrian Blundell-Wignall & Marianne Gizycki, 1992. "Credit Supply and Demand and the Australian Economy," RBA Research Discussion Papers rdp9208, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp9208
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    References listed on IDEAS

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    Cited by:

    1. Harold Ngalawa & Nicola Viegi, 2011. "Dynamic Effects Of Monetary Policy Shocks In Malawi," South African Journal of Economics, Economic Society of South Africa, vol. 79(3), pages 224-250, September.
    2. Kronick, Jeremy, 2015. "Do Loan-to-Value Ratio Regulation Changes Affect Canadian Mortgage Credit?," MPRA Paper 73671, University Library of Munich, Germany.
    3. Mwankemwa, Lusajo P. & Mlamka, Bonaventura, 2022. "Effects of Monetary Policy on Bank’s Credit Dynamics in Tanzania," African Journal of Economic Review, African Journal of Economic Review, vol. 10(2), March.
    4. Ramirez, Francisco A., 2012. "Crédito Al Sector Privado En República Dominicana (1997-2011): ¿Existe Evidencia De Racionamiento Del Crédito? [Private Sector Loans in the Dominican Republic (1997-2011):Is There Evidence of credi," MPRA Paper 68333, University Library of Munich, Germany.
    5. Carolyn Currie, 2003. "Towards a General Theory of Financial Regulation: Predicting, Measuring and Preventing Financial Crises," Working Paper Series 132, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    6. Nikolai Lazarov, 2022. "Evaluation of the factors influencing household lending in Bulgaria," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 221-238.
    7. Lobna ABID & Zouari Dorra & Zouari Ghorbel Sonia, 2012. "Household indebtedness in Tunisia," E3 Journal of Business Management and Economics., E3 Journals, vol. 3(10), pages 341-350.
    8. Hassan, Faiza & Qayyum, Abdul, 2013. "Modelling the Demand for Bank Loans by Private Business Sector in Pakistan," MPRA Paper 55366, University Library of Munich, Germany, revised Apr 2014.
    9. repec:etr:series:v:3:y:2012:i:11:p:341-350 is not listed on IDEAS
    10. Fernando Nieto, 2007. "The determinants of household credit in Spain," Working Papers 0716, Banco de España.
    11. Currie, Carolyn, 2006. "A new theory of financial regulation: Predicting, measuring and preventing financial crises," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 35(1), pages 48-71, February.
    12. 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.
    13. Karen Mills & Steven Morling & Warren Tease, 1994. "Balance Sheet Restructuring and Investment," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 27(1), pages 83-100, January.
    14. Philip Lowe & Thomas Rohling, 1992. "Loan Rate Stickiness: Theory and Evidence," RBA Research Discussion Papers rdp9206, Reserve Bank of Australia.
    15. Adrian Blundell-Wignall & Michele Bullock, 1992. "Changes in the Characteristics of the Australian Business Cycle: Some Lessons for Monetary Policy from the 1980s and Early 1990s," RBA Research Discussion Papers rdp9212, Reserve Bank of Australia.
    16. Philip Lowe, 1992. "The Impact of Financial Intermediaries on Resource Allocation and Economic Growth," RBA Research Discussion Papers rdp9213, Reserve Bank of Australia.
    17. Warren Tease & Jenny Wilkinson, 1993. "The Provision of Financial Services – Trends, Prospects and Implications," RBA Research Discussion Papers rdp9315, Reserve Bank of Australia.
    18. Petar Peshev, 2014. "Credit dynamics in Central and Eastern Europe," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 37-58,59-79.
    19. Tri Rahayu, Siti Aisyah & Mulyaningsih, Tri & Cahyadin, Malik, 2019. "Determinants of Credit Market in Indonesian Banking Industry," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 53(3), pages 11-21.
    20. taiebnia , Ali & rahmani , Teymur & Mohammadali , Hanieh, 2019. "Profit Rate Stickiness and Bank Specific Characteristics: Empirical Study of Panel Hidden Cointegration," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 14(1), pages 1-25, January.
    21. Philip Lowe & Thomas Rohling, 1993. "Agency Costs, Balance Sheets and the Business Cycle," RBA Research Discussion Papers rdp9311, Reserve Bank of Australia.
    22. Peter Peshev, 2014. "Bank Lending Dynamics in Bulgaria," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 2, pages 20-29, April.
    23. Petar Peshev, 2015. "Modelling the demand and supply of loans in Bulgaria," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 5, pages 52-69,70-85.
    24. Nada Oulidi & Laurence Allain, 2009. "Credit Market in Morocco: A Disequilibrium Approach," IMF Working Papers 2009/053, International Monetary Fund.

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