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Loan Commitments and Monetary Policy

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  • George Sofianos
  • Arie Melnik
  • Paul Wachtel

Abstract

The impact of loan commitment agreements on the way in which changes in monetary policy affects the economy is examined. In particular, the empirical relevance of quantity credit rationing in the transmission of monetary policy is studied with VAR models. We find evidence of a differential impact of monetary policy on loans under commitment and not under commitment. Our conclusion is that credit rationing for bank loans does occur, although loan commitments effectively protect borrowers from credit rationing. Thus, loan commitments which insulate borrowers from the effects of quantity rationing force monetary policy to work exclusively through interest rate channels.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2232.

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Date of creation: May 1987
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Publication status: published as Journal of Banking and Finance, Vol. 14, pp. 677-689, (1990).
Handle: RePEc:nbr:nberwo:2232

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  1. Boot, Arnoud & Thakor, Anjan V. & Udell, Gregory F., 1987. "Competition, risk neutrality and loan commitments," Journal of Banking & Finance, Elsevier, Elsevier, vol. 11(3), pages 449-471, September.
  2. King, Stephen R, 1986. "Monetary Transmission: Through Bank Loans or Bank Liabilities?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 18(3), pages 290-303, August.
  3. Otto Eckstein & Allen Sinai, 1986. "The Mechanisms of the Business Cycle in the Postwar Era," NBER Chapters, National Bureau of Economic Research, Inc, in: The American Business Cycle: Continuity and Change, pages 39-122 National Bureau of Economic Research, Inc.
  4. Anjan V. Thakor & Hai Hong & Stuart I. Greenbaum, 2004. "Bank Loan Commitments and Interest Rate Volatility," Finance, EconWPA 0411050, EconWPA.
  5. Campbell, Tim S, 1978. "A Model of the Market for Lines of Credit," Journal of Finance, American Finance Association, American Finance Association, vol. 33(1), pages 231-44, March.
  6. King, Robert G & Plosser, Charles I, 1984. "Money, Credit, and Prices in a Real Business Cycle," American Economic Review, American Economic Association, American Economic Association, vol. 74(3), pages 363-80, June.
  7. Cooley, Thomas F. & Leroy, Stephen F., 1985. "Atheoretical macroeconometrics: A critique," Journal of Monetary Economics, Elsevier, Elsevier, vol. 16(3), pages 283-308, November.
  8. Frank de Leeuw & Edward M. Gramlich, 1969. "The channels of monetary policy," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 472-491.
  9. Albert M. Wojnilower, 1980. "The Central Role of Credit Crunches in Recent Financial History," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(2), pages 277-340.
  10. Ham, John C & Melnik, Arie, 1987. "Loan Demand: An Empirical Analysis Using Micro Data," The Review of Economics and Statistics, MIT Press, vol. 69(4), pages 704-09, November.
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Cited by:
  1. Perera, Anil & Ralston, Deborah & Wickramanayake, J., 2014. "Impact of off-balance sheet banking on the bank lending channel of monetary transmission: Evidence from South Asia," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 29(C), pages 195-216.
  2. Smant, David / D.J.C., 2002. "Bank credit in the transmission of monetary policy: A critical review of the issues and evidence," MPRA Paper 19816, University Library of Munich, Germany.
  3. Robert B. Avery & Allen N. Berger, 1990. "Loan commitments and bank risk exposure," Working Paper, Federal Reserve Bank of Cleveland 9015, Federal Reserve Bank of Cleveland.
  4. Allen N. Berger & Gregory F. Udell, 1998. "The economics of small business finance: the roles of private equity and debt markets in the financial growth cycle," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 1998-15, Board of Governors of the Federal Reserve System (U.S.).
  5. Cowling, Marc, 2007. "The Role of Loan Guarantee Schemes in Alleviating Credit Rationing in the UK," MPRA Paper 1613, University Library of Munich, Germany.
  6. Parker, Simon C, 2002. "Do Banks Ration Credit to New Enterprises? And Should Governments Intervene? President's Lecture Delivered at the Annual General Meeting of the Scottish Economic Society 4-5 September 2001," Scottish Journal of Political Economy, Scottish Economic Society, Scottish Economic Society, vol. 49(2), pages 162-95, May.
  7. Paul Bennett, 1990. "The influence of financial changes on interest rates and monetary policy: a review of recent evidence," Quarterly Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Sum, pages 8-30.
  8. Mitusch, Kay & Nautz, Dieter, 2001. "Interest rate and liquidity risk management and the European money supply process," Journal of Banking & Finance, Elsevier, Elsevier, vol. 25(11), pages 2089-2101, November.
  9. Martin, J. Spencer & Santomero, Anthony M., 1997. "Investment opportunities and corporate demand for lines of credit," Journal of Banking & Finance, Elsevier, Elsevier, vol. 21(10), pages 1331-1350, October.
  10. Lamont K. Black & Richard J. Rosen, 2007. "How the credit channel works: differentiating the bank lending channel and the balance sheet channel," Working Paper Series, Federal Reserve Bank of Chicago WP-07-13, Federal Reserve Bank of Chicago.
  11. Iris Claus & Arthur Grimes, 2003. "Asymmetric Information, Financial Intermediation and the Monetary Transmission Mechanism: A Critical Review," Treasury Working Paper Series 03/19, New Zealand Treasury.
  12. Liu, Yong-Chin & Chen, Hsiang-Ju, 2012. "Economic conditions, lending competition, and evaluation effect of credit line announcements on borrowers," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 20(3), pages 438-458.
  13. Sumit Agarwal & Souphala Chomsisengphet & John C. Driscoll, 2004. "Loan commitments and private firms," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2004-27, Board of Governors of the Federal Reserve System (U.S.).
  14. Perez, Stephen J., 1998. "Testing for Credit Rationing: An Application of Disequilibrium Econometrics," Journal of Macroeconomics, Elsevier, Elsevier, vol. 20(4), pages 721-739, October.

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