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Credit Matters; Empirical Evidence on U.S. Macro-Financial Linkages

Tamim Bayoumi and Ola Melander ()

No 08/169, IMF Working Papers from International Monetary Fund

Abstract: This paper develops a framework for analyzing macro-financial linkages in the United States. We estimate the effects of a negative shock to banks' capital/assetratio on lending standards, which in turn affect consumer credit, mortgages, and corporate loans, and the corresponding components of private spending (consumption, residential investment and business investment). In addition, our empirical model allows for feedback from spending and income to bank capital adequacy and credit. Hence, we trace the full credit cycle. An exogenous fall in the bank capital/asset ratio by one percentage point reduces real GDP by some 1½ percent through its effects on credit availability, while an exogenous fall in demand of 1 percent of GDP is gradually magnified to around 2 percent through financial feedback effects.

Keywords: Consumer credit; Capital markets; Credit; United States; Corporate sector; Bank capital; Asset ratio; External shocks; Loans; Gross domestic product; Macro-Financial, Lending Standards, Financial Accelerator, standards, bank credit, capital adequacy, bank balance sheets, (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-mac
Date: 2008-07-01
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