THE CREDIT VIEW, FINANCIAL ANNOUNCEMENTS AND INTEREST-RATE RESPONSES

Proponents of the credit view have argued that aggregate commercial bank lending decisions have strong macro-economic effects. This view is in contrast to the monetarist view that it is sufficient to consider the liability side of the banking sector's balance sheet in analyzing the economic outlook. In this paper we examine whether or not financial markets reacted to unexpected changes in aggregate commercial bank lending during much of the 1980s. In contrast to the implications of the credit view, no evidence of a significant reaction to such shocks is uncovered. However, there is evidence to suggest that unexpected commercial paper activity is important to financial markets, but the sign of the association is the opposite of that predicted by the credit view.