Cyclical Lending Standards: A Structural Analysis

Kaiji Chen, Patrick Higgins and Tao Zha

No 27214, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: C51 C81 C82 E32 E44 G21 (search for similar items in EconPapers)
Date: 2020-05
New Economics Papers: this item is included in nep-ban, nep-fdg and nep-mac
Note: EFG ME
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Citations: View citations in EconPapers (2)

Published as Kaiji Chen & Patrick Higgins & Tao Zha, 2021. "Cyclical lending standards: A structural analysis," Review of Economic Dynamics, vol 42, pages 283-306.

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Journal Article: Cyclical Lending Standards: A Structural Analysis (2021)
Working Paper: Cyclical Lending Standards: A Structural Analysis (2020)
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