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 of the equilibrium hypothesis using a partial price adjustment scheme in disequilibrium, (ii) to estimate disequilibrium models of the business loan markets in the United States and in Japan by the method proposed and (iii) to compare the adjustment speeds of the prime rate and to test the equilibrium hypothesis in each country. In the United States, the loan market may be considered to be in equilibrium with the real interest rate adjusting to market pressures. In Japan, the nominal rather than the real interest rate is believed to adjust to the market pressure of disequilibrium and the equilibrium hypothesis is rejected. Moreover, it is clear that the prime rate adjusts more slowly in Japan than in the United States. Our results support the popular view that the United States financial markets are closer to equilibrium than their Japanese counterparts. However, there is no evidence of different upward and downward adjustment speeds for either country.