Lending Cycles

Patrick K. Asea and Stephen Blomberg

No 5951, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We investigate the lending behavior of banks by exploiting a rich panel dataset on the contract terms of approximately two million commercial and industrial loans granted by 580 banks between 1977-1993. Using a Markov switching panel model we demonstrate that banks change their lending standards from tightness to laxity systematically over the cycle. We then use an efficient minimum chi-square estimator to examine the relationship between the cyclical component of aggregate unemployment and bank lending standards when both variables are jointly endogenously determined in a system of simultaneous equations with mixed, continuous/discrete dependent variables. The patterns we uncover suggest that lax lending standards that tend to occur during expansions exert considerable influence on the dynamics of aggregate fluctuations.

JEL-codes: E24 E32 (search for similar items in EconPapers)
Date: 1997-03
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published as Asea, Patrick K. & Blomberg, Brock, 1998. "Lending cycles," Journal of Econometrics, Elsevier, vol. 83(1-2), pages 89-128.

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Related works:
Journal Article: Lending cycles (1998)
Working Paper: Lending Cycles (1997)
Working Paper: Lending Cycles (1997)
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