In a standard IS-LM model, the effects of monetary policy on real activity are felt through the demand for money and the (unique) interest rate. In reality, shocks in monetary policy will affect the relative structure of interest rates given imperfect substitution among financial instruments. In this paper we analyse the information content of the relative structure of interest rates on economic activity. Over and above currently defined spreads, we have defined spreads based on bank determined interest rates. The importance of these spreads is straightforward. In real economies, debt finance is the major source of external funds. Moreover, under realistic conditions of information asymmetry, loans from financial intermediaries are special. The expertise acquired by banks in the process of evaluating and screening applicants, and in monitoring loan performances enables them to extend credit to customers who find it difficult or impossible to obtain credit in the open markets. A reduced supply of loans or a rise in the cost of borrowing may depress the economy, to the extent that some borrowers are dependent on bank loans for credit.

In order to analyse the information content of financial variables on economic activity, measured through a set of proxy variables like output, investment, industrial production, employment, private consumption, durable goods consumption and inflation, we have used Granger-causality tests. We have then compared the predictive power of spreads with other financial variables such as interest rates and monetary and credit aggregates. These tests were performed on five major OCDE countries. A major conclusion is that "bank" spreads are informative about economic activity even though the relationship between financial aggregates and real activity has weakened. This seems to confirm the important role banks play in economic activity.