It is a well-known fact that the excessive demand for bank loans has been prevailing in Korea during the past twenty years or so. With this chronic excessive loan demand in organized financial markets regarded as a major factor contributing to the sur...
It is a well-known fact that the excessive demand for bank loans has been prevailing in Korea during the past twenty years or so. With this chronic excessive loan demand in organized financial markets regarded as a major factor contributing to the survival of the curb market, the paper aims at a theoretical analysis of the formation and the existence of unorganized financial markets including the curb market possibley related, in terms, of the loan demand and the supply, to the organized financial markets including the banks. Forty-two different types of unorganized financial market models are constructed and their responses to the high-interest-rate policy, i.e.the following changes in the interest rate and the volume of the unorganized financial markets, are examined.
Based on the a priori judgment that favors the risk-premium-adding loan supply behavior and on the empirical observation that since 1963 the interest rate in the unorganized financial markets has moved in line with that in the organized financial markets, the paper selects nine relatively realistic models out of the forty-two and entails the policy implication that not always the case is the common-sense argument that the high-interest-rate policy is most essential to getting rid of the curb market.