Lending Cycles

57 Pages Posted: 26 Jul 2000 Last revised: 10 Oct 2022

See all articles by S. Brock Blomberg

S. Brock Blomberg

Ursinus College

Patrick K. Asea

affiliation not provided to SSRN

Date Written: March 1997

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.

Suggested Citation

Blomberg, S. Brock and Asea, Patrick K., Lending Cycles (March 1997). NBER Working Paper No. w5951, Available at SSRN: https://ssrn.com/abstract=225731

S. Brock Blomberg

Ursinus College ( email )

Collegeville, PA 19426-2562
United States

Patrick K. Asea (Contact Author)

affiliation not provided to SSRN

No Address Available