Identifying the Macroeconomic Effect of Loan Supply Shocks

32 Pages Posted: 24 Jul 2000

See all articles by Joe Peek

Joe Peek

Federal Reserve Banks - Federal Reserve Bank of Boston

Eric S. Rosengren

Federal Reserve Bank of Boston - Supervision and Regulation

Geoffrey M. B. Tootell

Federal Reserve Banks - Federal Reserve Bank of Boston

Date Written: March 30, 2000

Abstract

Evidence of an operative credit channel has been inconclusive. The inability to clearly distinguish the effects of shocks to loan supply from those to loan demand has made it difficult to quantify the importance of this transmission mechanism to the economy. This paper provides an innovative approach to identifying loan supply shocks that enables us to show that such disturbances have had economically important effects on the U.S. economy over the past two decades. We provide three different pieces of evidence that confirm that loan supply shocks have been successfully isolated from shifts in loan demand: Our measure is particularly important for explaining inventory movements, the component of GDP most likely to be sensitive to shifts in bank loan supply; the effect is present even during periods of strong loan demand; and the effect does not dissipate quickly, as would be the case for demand shocks.

JEL Classification: E44, G21

Suggested Citation

Peek, Joe and Rosengren, Eric S. and Tootell, Geoffrey M.B., Identifying the Macroeconomic Effect of Loan Supply Shocks (March 30, 2000). Available at SSRN: https://ssrn.com/abstract=222168 or http://dx.doi.org/10.2139/ssrn.222168

Joe Peek

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Eric S. Rosengren

Federal Reserve Bank of Boston - Supervision and Regulation ( email )

600 Atlantic Avenue
P.O. Box 2076
Boston, MA 02210
United States
617-973-3090 (Phone)
617-973-3219 (Fax)

Geoffrey M.B. Tootell (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States
(617) 973-3430 (Phone)

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