Internal Funds, Bank Loans and Business Cycles

Project: Research

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The objective of this project is to study the dynamic interactions among the internal fund positions of entrepreneurs, the credit decision of banks and the macro-economy. The conditions under which the model will exhibit the following empirical observations will be investigated:bank credit standards varying systematically with the macro-economic condition, in particular, the standards possibly being lower in very good times compared to "normal" circumstances;in "normal" circumstances, temporary aggregate shocks being propagated to the future through the internal fund positions of entrepreneurs; andin very good times, the ease of bank credit standards reducing the loan qualities and eventually contributing to the downturn of the economy.The proposed project will enhance understanding of the relationship between the credit decision of banks and the macro-economy, and it will bring new insights about the potential effects of various macro-policies and banking regulations.


Project number9041173
Grant typeGRF
Effective start/end date1/01/0717/07/08