THE DYNAMIC BEHAVIOR OF BUSINESS LOANS AND THE PRIME RATE
Abstract
The purpose of this dissertation is to determine the relevant variables, channels of influence, and dynamics characterizing the business loan market. To achieve this goal two approaches to time series analysis are used: the economic approach and the statistical approach. In the economic approach a dynamic economic model of the business loan market is derived which gives rise to distributed lag relationships among the relevant variables. In the statistical approach the method of Christopher Sims, vector autoregressions, is applied to the variables suggested by the economic model. The statistical analysis suggests that business inventories and bank financial assets are the most important causal variables in the business loan market. A historical decomposition of the prime rate series suggests that innovations in bank financial assets and business inventories are the main contributors to the five major peaks in the prime rate over the past decade.
Degree
Ph.D.
Subject Area
Finance
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