The Effect of U.S. Economic Policies on the Rate of Business Failure

Using 92 quarters of data, the authors attempt to determine if federal government economic policies are the cause of unexplained variations in the rate of business failure. The three policy variables, money supply, volume of bank loans, and interest rates are investigated with a Cochran-Orcutt regression model utilizing lagged explanatory variables. The authors conclude that variations in the money supply and the volume of bank loans have an inverse, lagged effect on the rate of business failure. A statistically significant relationship was not established for interest rates.