The Cross-Border Credit Channel and Lending Standards Surveys
49 Pages Posted: 22 May 2018
Date Written: May 9, 2018
This paper argues that a measure of lending conditions - Senior Loan Officer (SLO) surveys - offers important insights into the monetary transmission mechanism. Using a Global VAR (GVAR) and SLO survey data from 16 countries, we document bank lending standards' significant role in explaining the dynamics of domestic credit conditions. Changes in lending attitudes lead to spillovers of financial conditions to other advanced and emerging market economies. We also examine the interaction of unconventional monetary policies (UMPs) and lending attitudes by using an external high frequency instrument. Looking through this lens of UMPs, we see that expansionary monetary policy led to a lowering of domestic credit standards which amplified the impact of the initial monetary stimulus. However, we also find evidence that the need to resort to UMPs also brought about a decline in lending demand, raising questions about whether the signaling channel of monetary policy unintentionally worked at cross purposes by sapping the full effectiveness of these policies. The varied experiences in the United States and euro area draw attention to the relative importance of bank intermediation in determining the strength of the bank lending channel of monetary policy.
Keywords: global VAR, lending standards and credit conditions, unconventional monetary policies, spillovers
JEL Classification: F44, F36, F15, E5, E32
Suggested Citation: Suggested Citation