Bank liquidity and the propagation of uncertainty in the U.S

Max Breitenlechner, Martin Geiger and Johann Scharler

Finance Research Letters, 2022, vol. 46, issue PB

Abstract: Does the banking sector matter for the propagation of uncertainty? We apply local projections to study the dynamic response of U.S. real GDP to exogenous changes in uncertainty conditional on the liquidity of the banking sector. We find that uncertainty has a stronger impact when the banking sector is less liquid. Additional analyses show that bank lending is more adversely affected in the case of low bank liquidity and that external finance-dependent sectors respond more markedly to uncertainty shocks. We conclude that the provision of bank loans plays an important role in the transmission of uncertainty.

Keywords: Uncertainty; Bank liquidity; Local projection method; State-dependency (search for similar items in EconPapers)
JEL-codes: D80 E32 E44 G21 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321004475

DOI: 10.1016/j.frl.2021.102467

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