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Credit Supply and Demand and the Australian Economy


  • Adrian Blundell-Wignall

    (Reserve Bank of Australia)

  • Marianne Gizycki

    (Reserve Bank of Australia)


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

    1. Maddala, G S & Nelson, Forrest D, 1974. "Maximum Likelihood Methods for Models of Markets in Disequilibrium," Econometrica, Econometric Society, vol. 42(6), pages 1013-1030, November.
    2. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-439, May.
    3. Laffont, Jean-Jacques & Garcia, Rene, 1977. "Disequilibrium Econometrics for Business Loans," Econometrica, Econometric Society, vol. 45(5), pages 1187-1204, July.
    4. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    5. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    6. Townsend, Robert M., 1988. "Information constrained insurance : The revelation principle extended," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 411-450.
    7. Paul Francis O'Brien & Frank Browne, 1992. "A "Credit Crunch"?: The Recent Slowdown in Bank Lending and Its Implications for Monetary Policy," OECD Economics Department Working Papers 107, OECD Publishing.
    8. King, Stephen R, 1986. "Monetary Transmission: Through Bank Loans or Bank Liabilities?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(3), pages 290-303, August.
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    Cited by:

    1. Peter Peshev, 2014. "Bank Lending Dynamics in Bulgaria," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 2, pages 20-29, April.
    2. 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.
    3. 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.

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