Tests of the Equilibrium Hypothesis in Disequilibrium Econometrics: An International Comparison of Credit Rationing

Abstract

The purpose of this paper is threefold: (i) to develop various tests
\nof the equilibrium hypothesis using a partial price adjustment scheme in
\ndisequilibrium, (ii) to estimate disequilibrium models of the business
\nloan markets in the United States and in Japan by the method proposed and
\n(iii) to compare the adjustment speeds of the prime rate and to test the
\nequilibrium hypothesis in each country. In the United States, the loan
\nmarket may be considered to be in equilibrium with the real interest rate
\nadjusting to market pressures. In Japan, the nominal rather than the real
\ninterest rate is believed to adjust to the market pressure of disequilibrium
\nand the equilibrium hypothesis is rejected. Moreover, it is clear that the
\nprime rate adjusts more slowly in Japan than in the United States. Our
\nresults support the popular view that the United States financial markets
\nare closer to equilibrium than their Japanese counterparts. However, there
\nis no evidence of different upward and downward adjustment speeds for
\neither country.