Bank Lending Standards and the U.S. Economy

Elijah Broadbent, Huberto Ennis, Tyler Pike and Horacio Sapriza

No 24-07, Working Paper from Federal Reserve Bank of Richmond

Abstract: The provision of bank credit to firms and households affects macroeconomic performance. We use survey measures of changes in bank lending standards, disaggregated by loan category, to quantify the effect of changes in banks’ attitudes toward lending on aggregate output, inflation, and interest rates. Bank lending to businesses is particularly important for macroeconomic outcomes, with peak effects on output of around half a percentage point after four quarters of the initial shock. These effects depend on the stage of the business cycle and the proximity of the short-term interest rate to its effective lower bound. The effects are larger when output is growing below trend and when the interest rate is away from its lower bound. We also find that the response of the economy to lending-standards shocks is asymmetric, with tightening shocks having larger effects on output.

Keywords: Credit Supply; Macroeconomic activity; Loan Portfolio Composition (search for similar items in EconPapers)
JEL-codes: E32 E44 G21 (search for similar items in EconPapers)
Pages: 76
Date: 2024-08-12
New Economics Papers: this item is included in nep-fdg, nep-ifn, nep-mac and nep-mon
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DOI: 10.21144/wp24-07

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