Research Discussion Papers, Bank of Finland
No 28/1995:
Bankruptcies, Indebtedness and the Credit Crunch
Kari Takala ()
and Matti Viren ()
Abstract: This paper deals with Finnish bankruptcies. It shows that
bankruptcies are strongly related to the business cycle and that they are
perhaps even more strongly related to indebtedness, real interest rates and
asset prices. The importance of these financial factors probably increased
when the financial markets were liberalized in the early 1980s. Although
there is a lot of seasonal and cyclical variation in bankruptcies the long
run level (especially when adjusted to the number of firms) is almost
constant representing some sort of "a natural rate of bankruptcies". What
makes bankruptcies so important is the fact that they directly affect
production, employment and credit expansion. The credit crunch effect in
particular is scrutinized in the paper.
Keywords: bankruptcies; indebtedness; credit crunch; business cycle; (follow links to similar papers)
30 pages, October 26, 1995
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