Dynamic effects of financial spillovers on bank lending: evidence from local projection-based impulse response analysis

Wang Chen (), Shigeyuki Hamori and Takuji Kinkyo

Applied Economics Letters, 2020, vol. 27, issue 5, 400-405

Abstract: Using local projections, we find that a positive (detrimental) financial stress (FS) shock affects bank lending more quickly and is more persistent than a negative (benign) FS shock. The study confirms that there is timing asymmetry, but we do not find magnitude asymmetry between positive and negative shocks. Furthermore, we find that a bank balance sheet characterized by a higher level of liquidity and efficiency and a lower level of leverage tends to better insulate lending from the impact of FS spillovers. Our findings have important implications for policymakers who seek to develop more efficient and resilient banking sectors.

Date: 2020
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DOI: 10.1080/13504851.2019.1619011

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