Monetary Policy Transmission via Loan Contract Terms in the United States

Esteban Argudo
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Esteban Argudo: Vassar College

International Journal of Central Banking, 2021, vol. 17, issue 70, 31

Abstract: I study monetary transmission via changes in contract terms for C&I loans. I find that nonprice terms tighten and price terms relax following a surprise monetary contraction, consistent with a decrease in loan supply. Adjustments in nonprice terms (maximum line size, covenants, and collateral requirements) are responsible for a statistically significant decrease in GDP of about 0.3 percentage point following a monetary surprise. I also document a lag between the response in bond market credit indicators and the loan contract terms. I interpret this finding as evidence of an important interaction between these two markets.

JEL-codes: E43 E44 E51 E52 (search for similar items in EconPapers)
Date: 2021
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