... to hedge against medium- and long-term price risks. Download PDF Ebook Option Trading and Oil Futures Markets ... one log device QQ level of education lead free props look beautiful with it. Some time ago to write a Tencent promote ...
Story - antoq - 10/18/2010 - 13:46 - 155 comments - 0 attachments
The informational wedge between insiders and outsiders is most acute for relatively smaller borrowers (like small businesses and even consumer loans) where the potential lender is unable to readily verify project quality (an adverse selection problem). Not surprisingly, a significant body of empirical research exists in documenting the various ways such adverse selection can be attenuated. However, to examine the borrower-lender loan dynamics in its fullest sense requires the inclusion of those potential borrowers who might want a loan for their businesses but choose to not formally apply because they are sure they will be refused by the bank – otherwise known as “discouraged” borrowers.
While the current body bank lending research, exemplified by the citations in footnote 2, have not included discouraged borrowers in their analysis, there is now a growing body of evidence that appears to suggest that owners of small businesses from certain demographic groups are systematically discouraged from applying for a loan (see, for example, Blanchflower, Levine, and Zimmerman, 2003; and Cavalluzzo, Cavalluzzo, and Wolken, 2002). Given the significant numbers of discouraged borrowers in the population, they cannot be thought of as mere random samples and, thereby, safely ignored from analysis. Ignoring discouraged borrowers from any analysis of credit availability or of the cost of credit is, in fact, likely to bias the relevant parameter estimates since the self selection of applicants may induce lenders to adopt different screening rules than those that would prevail if the discouraged borrowers were to apply.
There has been long determined and interest on the role of banks in the transmission of monetary policy and business cycle. For example, Keynes (1936) found that money plays an important role to economic growth. Furthermore, Gurley and Shaw (1995) began to redirect attention toward the overall interaction between financial structure and real activity, emphasizing financial intermediation, and particularly the role of financial intermediaries in the credit supply process as opposed to the money supply process.
However, Bernanke and Blinder (1988) produced another view that looked into the assets side as a monetary policy channel to influence the economic activities. For example, in a monetary contraction, banks’ reserves decrease because of reserve requirements and hence reduce the deposits. Consequently, it may increase the short-term and long-term interest rate and also reduce the supply of bank loans. If bank-dependent borrowers are dominant, thus it will reduce the investments and thereby in economic activity. This view, known as balance sheet channel, is further argued by Bernanke and Gertler (1989). They claim that monetary policy can also affect a borrower’s financial position or net worth, thereby influencing the costs of external finance to the borrower (arising from the loss of creditworthiness). Consequently, the monetary policy can affect the borrowers’ investment and spending plan.
The study examines the relationship between financial development and economic growth in Sierra Leone for the period 1970-2008. The method of principal components is employed to construct a financial sector development index (FSDI) used to proxy development in the sector. Using the autoregressive distributed lag (ARDL) approach, the study finds a unique cointegratingrelationship among real GDP, financialdevelopment, investment and real deposit rate. The results suggest that financial development exerts a positive and statistically significant effect on economic growth and investment is an important channel through which financial development feeds economic growth.
