Interest Rate Elasticity of Bank Loans: The Case for Sector-Specific Capital Requirements

CFS Working Paper No. 504

27 Pages Posted: 22 May 2015

See all articles by Florian Hense

Florian Hense

Center for Financial Studies (CFS); Goethe University Frankfurt

Multiple version iconThere are 2 versions of this paper

Date Written: February 26, 2015

Abstract

Empirical credit demand analysis undertaken at the aggregate level obscures potential behavioral heterogeneity between various borrowing sectors. Looking at disaggregated data and analyzing bank loans to non-financial companies, to financial companies, to households for consumption and for house purchases separately with respect to a common set of macroeconomic determinants may facilitate more accurate empirical relationships and more reliable insights for economic policy. Using quarterly Euro area panel data between 2003 and 2013, empirical evidence for heterogeneity in borrowing behavior across sectors and the credit cycle with respect to interest rates, output and house prices is found. The results motivate sector-specific, counter-cyclical capital requirements.

Keywords: Bank loans, disaggregation, interest rate elasticity, macro-prudential tools

JEL Classification: E44, E51, E52

Suggested Citation

Hense, Florian, Interest Rate Elasticity of Bank Loans: The Case for Sector-Specific Capital Requirements (February 26, 2015). CFS Working Paper No. 504. Available at SSRN: https://ssrn.com/abstract=2608483 or http://dx.doi.org/10.2139/ssrn.2608483

Florian Hense (Contact Author)

Center for Financial Studies (CFS) ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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