Macroeconomic Implications of Bank Loan Commitments

Posted: 10 Aug 2010 Last revised: 13 Aug 2010

Date Written: April 28, 2010

Abstract

This paper analyzes how bank loan commitments affect loan supply and macroeconomic volatility. Using testable implications derived from a model in which a bank faces stochastic loan commitment takedown, our bank-level empirical test provides evidence that when financial markets get tighter, increased loan takedown crowds out loans made without commitment, implying asymmetric effects depending on the relative access to loan commitments and ordinary term loans. At the state level, we find macroeconomic volatility tends to rise as market-wide liquidity dries up and loan commitments tend to stabilize the economy by partially offsetting negative liquidity shocks. This evidence adds support to the financial market explanation for the causes of increased stability of the U.S. economy from the early 1980s.

Keywords: loan commitments, bank lending, business cycles

JEL Classification: E40 E44 G21

Suggested Citation

Park, Ki Young, Macroeconomic Implications of Bank Loan Commitments (April 28, 2010). Available at SSRN: https://ssrn.com/abstract=1656211

Ki Young Park (Contact Author)

Yonsei University ( email )

Yonsei University
Seoul
Korea, Republic of (South Korea)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
613
PlumX Metrics