Cyclical Lending Standards: A Structural Analysis

Kaiji Chen, Patrick Higgins and Tao Zha

Review of Economic Dynamics, 2021, vol. 42, 283-306

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. (Copyright: Elsevier)

Keywords: Micro bank-level data; general equilibrium; credit frictions; credit supply; asymmetric information; moral hazard; verification frequency; business cycle; bank lending standards (search for similar items in EconPapers)
JEL-codes: C51 C81 C82 E32 E44 G21 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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DOI: 10.1016/j.red.2020.11.008

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