Cyclical Lending Standards: A Structural Analysis

54 Pages Posted: 26 May 2020

See all articles by Kaiji Chen

Kaiji Chen

Emory University - Department of Economics; Federal Reserve Bank of Atlanta

Patrick C. Higgins

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Tao A. Zha

Federal Reserve Bank of Atlanta; Emory University

Multiple version iconThere are 2 versions of this paper

Date Written: May 2020

Abstract

Lending standards are a direct measure of credit conditions. We use the micro data merged from three separate sources to construct this measure and document that an uncertain macroeconomic outlook, rather than banks' balance sheet positions, was an important reason that a majority of banks tightened bank lending standards during the Great Recession. Our extensive data analysis disciplines how we introduce credit frictions in the banking sector into a macroeconomic model. The model estimation reveals that an exogenous shock to credit supply drives cyclical lending standards and accounts for a significant portion of fluctuations in bank loans and aggregate output.

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Suggested Citation

Chen, Kaiji and Higgins, Patrick C. and Zha, Tao A., Cyclical Lending Standards: A Structural Analysis (May 2020). NBER Working Paper No. w27214, Available at SSRN: https://ssrn.com/abstract=3609666

Kaiji Chen (Contact Author)

Emory University - Department of Economics ( email )

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Federal Reserve Bank of Atlanta ( email )

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Patrick C. Higgins

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

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Tao A. Zha

Federal Reserve Bank of Atlanta ( email )

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Atlanta, GA 30309-4470
United States
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Emory University ( email )

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