Identifying the macroeconomic effects of bank lending supply shocks (original) (raw)
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Changes in bank lending standards and the macroeconomy
Journal of Monetary Economics, 2014
Identifying macroeconomic effects of credit shocks is difficult because many of the same factors that influence the supply of loans also affect the demand for credit. Using bank-level responses to the Federal Reserve's Loan Officer Opinion Survey, we construct a new credit supply indicator: changes in lending standards, adjusted for the macroeconomic and bank-specific factors that also affect loan demand. Tightening shocks to this credit supply indicator lead to a substantial decline in output and the capacity of businesses and households to borrow from banks, as well as to a widening of credit spreads and an easing of monetary policy.
IMF Working Papers, 2013
We present new evidence on how heterogeneity in banks interacts with monetary policy changes to impact bank lending, at both the bank and U.S. state levels. Using an exogenous policy measure identified from narratives on FOMC intentions and real-time economic forecasts, we find much stronger dynamic effects and greater heterogeneity in U.S. bank lending responses than that found in previous research based on realized federal funds rate changes. Our findings suggest that studies using realized monetary policy changes confound monetary policy's effects with those of changes in expected macrofundamentals. In fact, estimates from identified monetary policy changes lead to a reversal of U.S. states' ranking by credit's sensitivity to policy. We also extend Romer and Romer 's identification scheme, and expand the time and balance sheet coverage of the U.S. banking sample. JEL Classification Numbers: E44; E50; G21
Loan Supply Shocks and the Business Cycle
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Credit Supply Responses to Reserve Requirement: Loan-Level Evidence from Macroprudential Policy
Regulation of Financial Institutions eJournal, 2017
This paper estimates the impact of reserve requirements (RR) on credit supply in Brazil, exploring a large loan-level dataset. We use a difference-in-difference strategy, first in a long panel, then in a cross-section. In the first case, we estimate the average effect on credit supply of several changes in RR from 2008 to 2015 using a macroprudential policy index. In the second, we use the bank-specific regulatory change to estimate credit supply responses from (1) a countercyclical easing policy implemented to alleviate a credit crunch in the aftermath of the 2008 global crisis; and (2) from its related tightening. We find evidence of a lending channel where more liquid banks mitigate RR policy. Exploring the two phases of countercyclical policy, we find that the easing impacted the lending channel on average two times more than the tightening. Foreign and small banks mitigate these effects. Finally, banks are prone to lend less to riskier firms.
U.S. Bank Behavior in the Wake of the 2007-2009 Financial Crisis
IMF Working Papers, 2010
The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.
Bank Lending and Monetary Shocks: an Empirical Investigation
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This paper provides a systematic empirical study of the role of credit market frictions in the transmission of monetary shocks. First, using macro data for a developing economy (Pakistan), we show that banking spreads are countercyclical, even when we control for credit risk, monetary policy and potential maturity mismatches. Moreover, we find that this anticyclical nature is accentuated in the presence of government as an active participant in the private credit market. Then, using a unique dataset on corporate loan agreements for the period 2006-2011, we find evidence that, in times of tight monetary conditions, there is an overall increase in the pass-through of policy impulses to individual loans rates. Furthermore, our evidence suggest that the impact of these shocks is disproportionately felt by borrowers and is especially biased towards less established firms. Moreover, small (weak) banks change their loan conditions the most in tight conditions. Thus, our findings support the view that the existence of a credit channel is particularly relevant for emerging economies, hence emphasizing the need for appropriate stabilization policies.
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We show that nonbanks (funds, shadow banks, fintech) affect the transmission of monetary policy to output, prices and the distribution of risk via credit supply. For identification, we exploit exhaustive US loan-level data since the 1990s, borrower-lender relationships and Gertler-Karadi monetary policy shocks. Higher policy rates shift credit supply from banks to nonbanks, thereby largely neutralizing associated consumption effects (via consumer loans), while just attenuating firm investment and house price spillovers (via corporate loans and mortgages). Moreover, different from the risk-taking channel, higher policy rates increase risk-taking, as less-regulated, fragile nonbanks—in all credit markets—expand supply to riskier borrowers.