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Forestry professional cooperatives (FPCs) are crucial for improving the efficiency of small-scale forestry, realizing forestry modernization, and promoting the sustainable development of forestry in China. However, credit constraints restrict their development. Previous studies have examined the credit rationing issues faced by farmers and enterprises. Few researchers have investigated the financial constraints of FPCs. This paper discusses the current status of credit rationing of FPCs in China, and analyzes the influencing factors of credit rationing. Based on survey data collected in China’s Fujian Province, we found that the credit demand of most FPCs was not met, which was primarily due to the limited amount of loanable funds available. Our empirical results reveal that greater woodland area, product popularity, president's credit record, Forest Rights Guarantee and Storage Agency (FRGSA) are statistically significant factors in reducing the credit rationing of FPCs. We find that, conversely, development planning has the opposite effect. Based on our results, we propose some suggestions, such as ensuring the products have good sales channels, keeping a good credit record of the presidents and adopting forest right storage guarantees, which will help alleviate the credit constraints of FPCs.

In Keynes’s approach, interest rates are driven up by rises in demand for money and scaled down by rises in money supply. On the contrary, this paper argues that neither of these propositions will stand the test of scrutiny. Keynes traced demand for money to three main factors, the transaction, precautionary and speculative motives, but rises in demand associated with the transaction motive do not necessarily drive up the rate of interest. The paper shows also that the liquidity preference theory and the loanable funds theory are different theories and that the former is faulty, while the latter is correct.

Millions of households worldwide rely on savings groups (SGs) to satisfy their financial needs, yet important gaps remain in our understanding of this novel financial institution. We show theoretically that, within an SG, the supply of funds could fall short or be in excess of its demand. Then, we use week‐by‐week records from 46 Ugandan SGs to show that most groups do not generate sufficient loanable funds. We conclude by proposing three interventions that, in light of our model, should ease credit rationing and improve the welfare of SG members: requiring SG members to publicly state their savings and borrowing goals, encouraging early savings, and linking SGs with formal financial institutions.

This paper makes four points. First, interest rates are not prices; rather they are metrics. Second, there are no markets for «loanable funds» in reality, so attempts to use «the» market for loanable funds either to explain saving-induced growth (or growth induced in other ways) are misleading. Rather, the appropriate concept is markets for financial assets. Third, the primary and most important source of growth is not households’ low or reduced time preferences, but entrepreneurs high or increased profit expectations. Fourth, financial institutions may respond, in part, to a rise in the monetary base by accepting a higher default risk of their assets; i.e., by making riskier loans and buying riskier (financial) assets, in order to maintain nominal interest rates and net interest margins. Key words: Risk, Loanable funds, Financial assets, Austrian business cycle theory. JEL Classification: E32. Resumen: Este artículo desarrolla una versión modificada de la teoría austriaca del ciclo económico en la que el papel protagonista lo juegan las expectativas de beneficio de los empresarios (más que la reducción de la preferencia temporal de los agentes económicos) y la asunción de proyectos empresariales más arriesgado, como principal detonante de las malas inversiones. Palabras clave: Riesgo, Fondos prestables, Activos financieros, Teoría austriaca del ciclo económico. Clasificación JEL: E32.

The Rebuilding Macroeconomic Theory Project, led by David Vines and Samuel Wills (2020), is an important, albeit long overdue, initiative to rethink a failing mainstream macroeconomics. Professors Vines and Wills, who must be congratulated for stepping up to the challenge of trying to make mainstream macroeconomics relevant again, call for a new multiple-equilibrium and diverse (MEADE) paradigm for macroeconomics. Their idea is to start with simple models, ideally two-dimensional sketches, that explain mechanisms that can cause multiple equilibria. These mechanisms should then be incorporated into larger DSGE models in a new, multiple-equilibrium synthesis – to see how the fundamental pieces of the economy fit together, subject to it being ‘properly micro-founded’. This paper argues that the MEADE paradigm is bound to fail, because it maintains the DSGE model as the unifying framework at the center of macroeconomic analysis. The paper reviews 10 fundamental weaknesses inherent in DSGE models which make these models irreparably useless for macroeconomic policy analysis. Mainstream macroeconomics must put DSGE models, once and for all, in the Museum of Implausible Economic Models – and learn important lessons from non-DSGE macroeconomic approaches.

Using a survey of enterprises in Myanmar, we examine demand for formal credit and the extent to which firms are self-constrained by not applying for credit or if they apply and are constrained by bank’s rejections. We have information about firm managers’ managerial capacity and risk attitude. We use this to test if the allocation of loanable funds is systematically associated with the attributes. We find that these attributes are positively associated with firm performance and the probability of both having credit demand and applying for credit. On the supply side we find no discernible links to the traits once we control for self-constraint in applying for credit. Thus, the traits improve credit access through a higher likelihood of applying for credit not a higher probability of being granted credit when applying. We suggest to improve the allocation of credit by incentivizing banks to utilize information about managers’ business capacity.

A number of objections have been raised against the prohibition ofriba (interest) in Islam and it has been alleged that a riba-free economywill face so many problems that it may not be able to survive. This paperevaluates the nature and significance of some of the major objectionsand, in the process, also indicates the rationale behind the prohibition ofriba.I. ALLOCATION OF RESOURCESOne of the objections raised against an interest-free economy is that itwill not be able to bring about an optimum allocation of resources. Thereason given for this is that interest is a price and like all prices itperforms the function of allocating 'scarce' loanable funds among the'infinite' users of such funds in an objective manner on the basisof abilityto pay the price. If the demand for, or supply of, loanable funds changes,a new equilibrium is reached at a different rate of interest.This objection is based on two assumptions. The first assumption isthat in the absence of interest loanable funds will be available ‘free’ toborrowers, the demand will thus be infinitely large and there will be nomechanism for equating demand with supply. This implies that interestis the only objective criterion for allocation of resources and, in itsabsence, scarce financial resources will be used inefficiently to thedetriment of society. The second assumption is that the money rate ofinterest has been a successful mechanism in allocqting resourcesoptimally and that profit cannot perform the function efficiently.The first asumption is baseless because funds will not be available‘free’ in the Islamic system. They will be available at a cost, and the costwill be the ‘share’ in profit. The rate of profit will hence become acriterion for allocation of resources as well as the mechanism forequating demand with supply. The greater the expected or ex-ante rateof profit in any business, the greater may be the supply of funds to thatbusiness. If the actual or ex-post profit for certain businesses isconsistently lower than the ex-ante profit such businesses may facedifficulty in raising funds in the future. Therefore, while ex-ante profitwill be immediately important in determining the flow of investment,the ex-post performance will be crucial for the future success of thebusiness in raising funds. This should help enforce a greater discipline ininvestments through a more careful evaluation of projects, weeding outall inefficient and unproductive projects. This is not the same in interestbasedinvestment. The interest-oriented lender does not share in the riskof the business financed. He shifts the entire risk of busines to theentrepreneur and assures himself of a predetermined rate of returnirrepwtive of the ultimate net outcome of the borrower’s business. Hethus does not have to undertake as thorough an evaluation as the sahib al-mal(financier) would have to undertake in a riba-free economy, eitherby himself or with the help of a bank or consulting firm. Because of a twosidedevaluation of projects, the rate of profit in the Islamic systemshould be a more efficient mechanism for allocation of resources thaninterest can ever be in the capitalist system ...

A “global saving glut” was invented by Ben Bernanke in 2005 as a label for positive net lending (imports exceeding exports) to the American economy by the rest of the world. This trading situation had already emerged around 1980, and led to the Plaza Accord in 1985. One common explanation is based on the Mundell-Fleming IS/LM/BP model. But this model cannot be valid, since the “BP” equation is not independent of “IS.” Other champions of this saving glut hypothesis rely on loanable funds theory, which is institutionally inadequate. More plausible analyses of the persistent trade imbalance can be derived from a two-country IS/LM set-up devised by Wynne Godley, a Kaleckian description of the political economy of East Asia and the United States, and dissection of the terms of trade due to W. Arthur Lewis and Luigi Pasinetti.

The paper offers empirical justifications for the instrumentality of external sector in influencing the fiscal position of a country through the exchange rate. In the study, ARDL bounds test approach to cointegration analysis is adopted to examine the long run and short run relationship between exchange rate and fiscal performance in Nigeria. The validity of the findings is based on time series data between 1981 and 2017. The emerging evidence reveals that the exchange rate movement has a substantial influence on the fiscal performance, as there exists a significant adverse relationship between exchange rate and fiscal deficit in the long run as well as in the short run, while the association between exchange rate and public debt is found to be significantly positive in both periods. Empirical elucidations posit that an appreciation of the exchange rate could lead to decreasing fiscal deficits. However, the exchange rate appreciation might not induce a reduction in public debt, as it could stimulate demand for loanable funds by the government, although such effect could be mitigated through strategic investment policy and subsidized funding schemes to aid domestic production. Given that fiscal performance is considerably driven or constrained by the exchange rate movement, the study suggests that developing a strategic framework for ensuring a realistic exchange rate and the mitigation of regular fluctuations or correcting inappropriate exchange rate is crucial.

We establish a benchmark result for the relationship between the loanable-funds and the money-creation approach to banking. In particular, we show that both processes yield the same allocations when there is no uncertainty. In such cases, using the much simpler loanable-funds approach as a shortcut does not imply any loss of generality. When there is aggregate risk with complete contracts and complete markets, we indicate that a restricted equivalence result holds., Journal of Economics, 135 (2), ISSN:1617-7134, ISSN:0931-8658

We provide a rationale for bank money creation in our current monetary system by investigating its merits over a system with banks as intermediaries of loanable funds. The latter system could result when CBDCs are introduced. In the loanable funds system, households limit banks’ leverage ratios when providing deposits to make sure they have enough “skin in the game” to opt for loan monitoring. When there is unobservable heterogeneity among banks with regard to their (opportunity) costs from monitoring, aggregate lending to bank-dependent firms is inefficiently low. A monetary system with bank money creation alleviates this problem, as banks can initiate lending by creating bank deposits without relying on household funding. With a suitable regulatory leverage constraint, the gains from higher lending by banks with a high repayment pledgeability outweigh losses from banks which are less diligent in monitoring. Bank-risk assessments, combined with appropriate risk-sensitive capital requirements, can reduce or even eliminate such losses.

This is the first study to systematically assess the significance of the standard money multiplier vis-à-vis the bank credit transmission channel in the case of Pacific Island Economies, focusing on Papua New Guinea. The vector autoregressive model comprising six variables—interest rate, inflation rate, loans, deposits, reserve money, and real output—was estimated using quarterly data for the period 1980q1 to 2017q4. We applied the ordinary least squares (OLS) method to estimate the system of vector autoregressions (VARs). The estimation was conducted for the full and sub-sample periods. From the impulse response functions generated, the results suggest that the money multiplier does not hold and that the transmission to bank credit appears weak. It seems that the ability of the Central Bank to make loanable funds available through its conduct of monetary policy may not enhance private sector credit. On the other hand, there appears to be a significant and positive association between bank deposits and credit, suggesting that bank deposits and credit are endogenous and demand driven.

The study examined empirically the relationship between monetary-fiscal policy mix and Nigeria’s economic stability. The Johansen co-integration technique complemented with VECM were employed to achieve the objective of the study. The result of the descriptive statistics revealed that the variables were normally distributed and the degree of variability of them was good as evident from the Jarque-Bera statistics and standard deviation. The Johansen and Juselius co-integration results revealed that both the trace statistic and maximum Eigenvalue statistic confirmed the existence of co-integrating equations among the variables of interest. It was evident that the trace test indicated six co-integrating equations while maximum Eigenvalue test revealed four co-integrating equations in the model, as the null hypothesis of no co-integration was rejected. These results suggested that there was a unique long run equilibrium relationship among the variables. The VECM result indicated that there was a long run relationship between the variables concerned. The result further showed that monetary-fiscal indicators have not made much significant contributions to the growth of the Nigerian economy as well as economic stabilization in Nigeria. The study recommended the entrenchment of fiscal discipline as a result of destabilizing effect of government’s fiscal activities due to its fiscal irresponsibility in Nigeria. Also recommended was that monetary policies should be structured to lower lending interest rate and raise interest rate on saving deposits so as to increase the availability of loanable funds which will in turn boost investment and stimulate economic growth.

This empirical study adopts an open-economy loanable funds model to investigate the impact of post-Bretton Woods U.S. federal government budget deficits and personal income tax rates on the ex post real interest rate yield on thirty-year Treasury bonds. In this study, the budget deficit is measured in two different ways, the total (“unified”) budget deficit and the primary deficit (the total/unified deficit minus net interest payments). Two different estimation techniques, autoregressive two stage least squares estimation and the ARCH (Autoregressive Conditional Heteroscedasticity) Method, for the 1973-2016 study period provide evidence that the ex post real interest rate yield on thirty-year Treasury bonds has been an increasing function of both federal budget deficit measures (expressed as a percent of GDP) and the maximum marginal federal personal income tax rate. The estimations all imply that elevating either the total/unified or primary federal budget deficit appears to raise the cost of borrowing in the U.S., whereas reducing the maximum marginal personal income tax rate appears to reduce the cost of borrowing. Given the potential effects of longer-term real interest rates on investment in new plant and equipment and overall economic growth, policy-makers should not overlook these findings.

PurposeThe purpose of this study is to empirically investigate the impact of aggregate federal personal income tax evasion on the real interest rate yield on 10-year Treasury notes, 20-year Treasury bonds and 30-year US Treasury bonds.Design/methodology/approachAn open-economy loanable funds model is developed, with income tax evasion expressly included in the specification in the form of the AGI (adjusted gross income) gap and the ratio of unreported AGI to actual AGI, expressed as a per cent.FindingsThe empirical estimations reveal compelling evidence that income tax evasion thus measured acts to elevate the real interest rate yields on 10-year Treasury notes and both 20-year and 30-year Treasury bonds, raising the possibility of a tax evasion-induced form of “crowding out”.Research limitations/implicationsIdeally, tax evasion data for a longer time period would be very useful.Practical implicationsTo the extent that greater federal personal income tax evasion yields a higher interest rate yield on 10-year, 20-year and 30-year Treasury debt issues, it is likely that the tax evasion will also elevate other interest rates in the economy.Social implicationsHigher interest rates resulting from tax evasion would likely slow-down macroeconomic growth and accelerate unemployment.Originality/valueNeither the tax evasion literature nor the interest rate literature has ever considered the impact of tax evasion behavior on long-term interest rates.

In the present study, we empirically investigate the uncertainty of the effectiveness of recent monetary policies in lowering the real mortgage rate in the U.S. In particular, we have an eye towards determining whether the Fed’s policies have been consistently effective or whether, instead, there is uncertainty regarding whether, when, and to what extent these policies achieve their ostensible goal of lowing the mortgage rate. Based upon empirical estimates of a loanable funds model, it is shown that the consistency of recent monetary policies, as reflected in the ratios of the M2 money supply to GDP and quantitative easing to GDP, has varied considerably between the study periods 1974–2009, 1974–2010, 1974–2011, 1974–2012, 1974–2013, 1974–2014, and 1974–2015, implying that there exists uncertainty regarding how consistent monetary policy effectiveness really is. This monetary policy uncertainty is even more apparent when the periods 1974–2008 and 1974–2016 are considered. Moreover, it is observed that elevated interest rate risk is a collateral effect of recent monetary policies. Interest rate risk seriously endangers the health of the macro-economy and throws future monetary policy effectiveness even further into question and yields further economic uncertainty.

This study examines the effect of finance on energy efficiency in Africa, addressing two fundamental empirical issues in the energy-finance literature: (1) simultaneous modelling of efficiency estimates and determinants of efficiency and (2) two-way endogeneity problem with income and financial depth. I apply the endogenous stochastic frontier method. Life expectancy at birth instruments for income while religion, latitude of capital city and legal system origin instrument for financial depth. Estimated efficiency in electricity consumption is between 9 and 16%, which is quite low, suggesting greater potential to improve electricity consumption efficiency. Without considering the level of development, the result shows that finding a statistically significant negative effect of financial depth on energy inefficiency depends on the choice of instrument and not the indicator of financial depth. Using country latitude and legal system origin as instruments produce robust statistically significant negative effect for all the indicators of financial depth, but high monetisation of the economy and supply of loanable funds exert the greatest effect, recommending between 0.069 and 0.096% reduction in inefficiency for every 1% increase in these indicators. However, both the choice of instruments and indicator of financial depth matter, when I consider income level. I discuss the policy implications.