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Abstract

This paper uses a panel of state-level data to test whether changes in bank loan supply affect output. Since the U.S. states are small open economies with fixed exchange rates, state-specific shocks to money demand are automatically accommodated, leading to changes in lending if banks rely on deposits as a source of funding. Using these shocks as an instrumental variable, I find that shocks to money demand have large and statistically significant effects on the supply of bank loans, but loans have small, often negative, and statistically insignificant effects on output.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 51 (2004)
Issue (Month): 3 (April)
Pages: 451-471

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Handle: RePEc:eee:moneco:v:51:y:2004:i:3:p:451-471

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Web page: http://www.elsevier.com/locate/inca/505566

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References

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