Lending standards, credit booms and monetary policy
- This paper investigates the risk channel of monetary policy on the asset side of banks’ balance sheets. We use a factoraugmented vector autoregression (FAVAR) model to show that aggregate lending standards of U.S. banks, such as their collateral requirements for firms, are significantly loosened in response to an unexpected decrease in the Federal Funds rate. Based on this evidence, we reformulate the costly state verification (CSV) contract to allow for an active financial intermediary, embed it in a New Keynesian dynamic stochastic general equilibrium (DSGE) model, and show that – consistent with our empirical findings – an expansionary monetary policy shock implies a temporary increase in bank lending relative to borrower collateral. In the model, this is accompanied by a higher default rate of borrowers.
| Author: | Elena AfanasyevaORCiDGND, Jochen Güntner |
|---|---|
| URN: | urn:nbn:de:hebis:30:3-361011 |
| URL: | http://www.imfs-frankfurt.de/fileadmin/user_upload/IMFS_WP/IMFS_WP_85.pdf |
| Parent Title (English): | Working paper series / Institute for Monetary and Financial Stability ; 85 |
| Series (Serial Number): | Working paper series / Institute for Monetary and Financial Stability (85) |
| Place of publication: | Frankfur am , Main |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2014 |
| Year of first Publication: | 2014 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2014/12/16 |
| Tag: | Bank lending standards; Credit supply; Monetary policy; Risk channel |
| Issue: | This version: October 31, 2014 |
| Page Number: | 69 |
| HeBIS-PPN: | 352929642 |
| Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
| Wissenschaftliche Zentren und koordinierte Programme / Institute for Monetary and Financial Stability (IMFS) | |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Sammlungen: | Universitätspublikationen |
| Licence (German): |  Deutsches Urheberrecht |
