Interest rates, banking spreads and credit supply: the real effects

ISSN： 1466-4364

Source： The European Journal of Finance, Vol.3, Iss.2, 1997-06, pp. : 107-136

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Abstract

We analyse the information content of the relative structure of interest rates on economic activity. Over and above currently defined spreads, we have defined spreads based on bank interest rates. In order to analyse the information content of financial variables on economic activity, measured through a set of proxy variables like output, investment, industrial production, employment, private consumption, durable goods consumption and inflation, Granger-causality tests are performed. The predictive power of spreads is then compared with other financial variables such as interest rates and monetary and credit aggregates. The tests are performed on five major OECD countries. A major conclusion is that ‘bank’ spreads are informative about economic activity even though the relationship between financial aggregates and real activity has weakened.