Further Evidence on the Credit View: The Case of Finland
Posted: 20 Mar 2003
The credit view asserts that there is a positive relationship between credit availability and economic growth. This paper applies recent advances in time series analysis to investigate the role of credit availability on the Finnish economy in the 1980-1996 period. During this period the Finnish economy experienced rapid economic growth followed by a deep recession associated with a widespread banking crisis. Based on monthly time series of GDP, money supply, consumer prices, bank credit, and export data, vector autoregression results indicate that credit availability played an important role in the expansion of the Finnish economy in the early 1980's as well as its later contraction. The impact of credit availability on the Finnish aggregate was smaller than money supply but larger than prices. The paper concludes that the credit availability had a pervasive influence on the Finnish economy and that Government intervention in Finland played a major role in limiting adverse credit effects on the economy.
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