Further evidence on the credit view: the case of Finland

Author: Anari Ali   Kolari James   Pynnönen Seppo   Suvanto Antti  

Publisher: Routledge Ltd

ISSN: 1466-4283

Source: Applied Economics, Vol.34, Iss.3, 2002-02, pp. : 267-278

Disclaimer: Any content in publications that violate the sovereignty, the constitution or regulations of the PRC is not accepted or approved by CNPIEC.

Previous Menu Next

Abstract

The present paper provides further empirical evidence on the credit view (i.e., bank credit availability has a positive impact on macroeconomic activity) by investigating the case of Finland. The Finnish economy suffered a severe recession in the early 1990s that was marked by widespread banking crisis and extensive government intervention. Using monthly data for the 1980–1996 period, unrestricted and restricted vector autoregression (VAR) models with GDP, money supply, consumer prices, bank credit, and exports were estimated. It is found that, while money supply had the largest effect on economic output, bank credit exhibited a fairly strong effect on output that exceeded price effects for the most part. Exports had little impact on fluctuations in GDP but did help to explain industrial output changes over time. Based on these results, it is concluded that there is empirical support for the credit view in Finland. By implication, government intervention in Finland to restore safety and soundness during the banking crisis likely limited further damage to the macroeconomy associated with disruption of credit intermediation services.