Cyclical Lending Standards: A Structural Analysis

Kaiji Chen, Patrick Higgins and Tao Zha

No 2020-6, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: Lending standards are a direct measure of credit conditions. We use the micro data merged from three separate sources to construct this measure and document that an uncertain macroeconomic outlook, rather than banks' balance sheet positions, was an important reason that a majority of banks tightened bank lending standards during the Great Recession. Our extensive data analysis disciplines how we introduce credit frictions in the banking sector into a macroeconomic model. The model estimation reveals that an exogenous shock to credit supply drives cyclical lending standards and accounts for a significant portion of fluctuations in bank loans and aggregate output.

Keywords: endogenous regime switching; asymmetric credit allocation; land prices; heavy GDP; debt-to-GDP ratio; nonlinear effects; GDP growth target; heavy loans; real estate; bank loans; business cycles; debt (search for similar items in EconPapers)
JEL-codes: C51 C81 C82 E32 E44 G21 (search for similar items in EconPapers)
Pages: 53
Date: 2020-05-21
New Economics Papers: this item is included in nep-ban, nep-fdg and nep-mac
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Cyclical Lending Standards: A Structural Analysis (2021)
Working Paper: Cyclical Lending Standards: A Structural Analysis (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedawp:88035

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DOI: 10.29338/wp2020-06

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