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The Dynamic Interrelations between External Finance and Bank Credit

Lookup NU author(s): Dr Fabrizio Casalin

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This is the authors' accepted manuscript of an article that has been published in its final definitive form by Routledge, 2016.

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Abstract

This paper studies the interrelations among the volumes of corporate bonds and stocks issued by non-financial firms, and the level of commercial and industrial loans outstanding, in the United States. The three aggregates evolve into one co-integrating relationship and are characterized by asymmetric conditional volatility. The co-movements are driven by financial variables that are leading indicators of the business cycle, such as the yield spread, size of loan market and volatility of secondary markets. Bond and stock issuance are positively correlated, and even more so during the expansionary phase of the cycle. On the contrary, loans outstanding and bond issuance are negatively correlated, and the two aggregates tend to diverge more in periods of economic downturn, so that it becomes easier to substitute bonds for loans and vice-versa.

Publication metadata

Author(s): Casalin F, Dia E

Publication type: Article

Publication status: Published

Journal: Applied Economics

Year: 2016

Volume: 48

Issue: 3

Pages: 243-259

Online publication date: 26/08/2015

Acceptance date: 01/08/2014

Date deposited: 27/06/2014

ISSN (print): 0003-6846

ISSN (electronic): 1466-4283

Publisher: Routledge

URL: https://doi.org/10.1080/00036846.2015.1078442

DOI: 10.1080/00036846.2015.1078442

Notes: Submitted to Applied Economics (Aug 2014).

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