Shocks to the Lending Standards and the Macroeconomy
Vivek Sharma
CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University
Abstract:
This paper presents a model in which firms have endogenously-persistent lending relationships with banks which compete both on interest rates and collateral requirements. The economy features an endogenously-evolving lending standard which is subject to an exogenous shock. A shock to bank lending standards in this model leads to a spike in spread, drop in bank credit and amplification of macroeconomic volatility. These effects are higher at greater intensity and persistence of the lending relationships. This work shines a spotlight on how shocks to lending standards can have wider macroeconomic implications and shows how financial shocks can affect real economy.
Keywords: Lending Standards; Deep Habits in Banking; Macroeconomic Fluctuations (search for similar items in EconPapers)
JEL-codes: E32 E44 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2023-10
New Economics Papers: this item is included in nep-ban, nep-dge, nep-fdg, nep-ifn and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2023-55
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