The second moments matter: The response of bank lending behaviour to macroeconomic uncertainty

Christopher Baum (), Mustafa Caglayan () and Neslihan Ozkan

Working Papers from Department of Economics, University of Glasgow

Abstract: This paper investigates whether variations in macroeconomic uncertainty distort banks' allocation of loanable funds by affecting the predictability of banks' returns from lending. Low levels of macroeconomic uncertainty will allow bankers to base their lending decisions on more accurate evaluations of different lending opportunities, leading to a more unequal distribution of lending across banks. Contrarily, increased macroeconomic uncertainty will hinder bankers ability to identify and channel funds towards the best opportunities, including more similar lending behaviour across banks. Our empirical analysis provides support for the hypothesis that macroeconomic uncertainty adversely affects the efficient allocation of loanable banks.

JEL-codes: C22 C23 D81 E51 (search for similar items in EconPapers)
Date: 2005-12
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Working Paper: The second moments matter: The response of bank lending behavior to macroeconomic uncertainty (2004)
Working Paper: The second moments matter: The response of bank lending behavior to macroeconomic uncertainty (2004)
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Persistent link: http://EconPapers.repec.org/RePEc:gla:glaewp:2005_27

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