Using 92 quarters of data, the authors attempt to determine if federal government economic policies are the cause of unexplained variations in the rate of business failure. The three policy variables, money supply, volume of bank loans, and interest rates are investigated with a Cochran-Orcutt regression model utilizing lagged explanatory variables. The authors conclude that variations in the money supply and the volume of bank loans have an inverse, lagged effect on the rate of business failure. A statistically significant relationship was not established for interest rates.
Get full access to this article
View all access options for this article.
References
1.
BachG. L., and HuizengaC. J., “The Differential Effects of Tight Money,”The American Economic Review, 51: 52–80, March, 1961.
2.
CarsonDean, and ScottIra O.Jr., “Differential Effects of Monetary Policy on Small Business,” in The Vital Majority: Small Business in the American Economy, edited by CarsonDean, U.S. Government Printing Office.
3.
Dun & Bradstreet, Inc., The Business Failure Record, New York: Dun & Bradstreet, Inc., 1977.
4.
GalbraithJohn K., “Market Structure and Stabilization Policy,”The Review of Economics and Statistics, 339: 124–133, May, 1957.
5.
HodgmanDonald R., “Credit Risk and Credit Rationing,”Quarterly Journal of Economics, 258–278, May, 1960.
6.
Ou, CharlesC. F., “Effects of Tight Money Policy on the Availability of Bank Loans to Small Business,”American Journal of Small Business, IV: 22–30, July, 1979.
7.
TannerJ. Ernest, “Are the Lags in the Effects of Monetary Policy Variable?,”Journal of Monetary Economics, 5: 104–121, January, 1979.
