Monetary Normalizations and Consumer Credit: Evidence from Fed Liftoff and Online Lending

International Journal of Central Banking, Forthcoming.

48 Pages Posted: 23 May 2016 Last revised: 12 Dec 2020

See all articles by Christoph Bertsch

Christoph Bertsch

Sveriges Riksbank - Research Division

Isaiah Hull

Sveriges Riksbank - Research Division

Xin Zhang

Sveriges Riksbank - Research Division

Date Written: May 31, 2017

Abstract

On December 16th of 2015, the Fed initiated “liftoff,” a critical step in the monetary normalization process. We use a unique panel dataset of 640,000 loan-hour observations to measure the impact of liftoff on interest rates, demand, and supply in the online primary market for uncollateralized consumer credit. We find that credit supply increased, reducing the spread by 16% and lowering the average interest rate by 16.9-22.6 basis points. Our findings are consistent with an investor-perceived reduction in default probabilities; and suggest that liftoff provided a strong, positive signal about the future solvency of borrowers.

Keywords: monetary normalization, monetary policy signaling, consumer loans, credit risk

JEL Classification: D14, E43, E52, G21

Suggested Citation

Bertsch, Christoph and Hull, Isaiah and Zhang, Xin, Monetary Normalizations and Consumer Credit: Evidence from Fed Liftoff and Online Lending (May 31, 2017). International Journal of Central Banking, Forthcoming., Available at SSRN: https://ssrn.com/abstract=2780418 or http://dx.doi.org/10.2139/ssrn.2780418

Christoph Bertsch (Contact Author)

Sveriges Riksbank - Research Division ( email )

S-103 37 Stockholm
Sweden

Isaiah Hull

Sveriges Riksbank - Research Division ( email )

S-103 37 Stockholm
Sweden

Xin Zhang

Sveriges Riksbank - Research Division ( email )

S-103 37 Stockholm
Sweden

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