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A bank lending channel or a credit supply shock?

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  • Milcheva, Stanimira

Abstract

Shifts in credit supply could have a bearing on house prices e.g. through financial innovations and changes in regulation independently of the existence of a bank lending channel of monetary policy. This paper assesses the responses of US house prices to an exogenous credit supply shock and compares them with the effects from variations in credit supply associated with a bank lending channel. The contribution of the study is twofold. First, innovations in credit supply are identified using a mortgage mix variable, thereby accounting for the market-based financial intermediaries. As a robustness check a survey variable of bank lending standards for mortgage loans is also used. Second, the policy-induced credit supply effect on house prices is disentangled and compared with the effect from an exogenous credit supply shock. It is shown that in the first 3years credit supply shocks affect house prices exogenously rather than through the bank lending channel. Monetary policy has still a large impact on house prices, even when the bank lending channel is ‘turned off’.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 37 (2013)
Issue (Month): C ()
Pages: 314-332

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Handle: RePEc:eee:jmacro:v:37:y:2013:i:c:p:314-332

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Web page: http://www.elsevier.com/locate/inca/622617

Related research

Keywords: C32; E52; F41; Bank lending channel; Monetary policy transmission mechanism; Credit supply; House prices; Mortgage mix; Lending standards;

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References

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Cited by:
  1. Tomas Konecny & Oxana Babecka Kucharcukova, 2013. "Evaluating the Links Between the Financial and Real Sectors in a Small Open Economy: The Case of the Czech Republic," Working Papers 2013/10, Czech National Bank, Research Department.

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