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This paper presents a two-equation structural model of short-term loans and the lending rate, estimated with quarterly data for the Netherlands. The emphasis is on the fact that the lending rate is observed as a zone rather than as a unique and directly measurable market price. An important empirical result is that the interest rate elasticity of loan demand is significant. This conclusive finding confirms the intuitive feeling with regard to the importance of the rate of interest for credit prevailing in the banking community, but is seldom found in empirical econometrics. |
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