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Monetary Policy Transmission via Loan Contract Terms in the United States

Author

Listed:
  • Esteban Argudo

    (Vassar College)

Abstract

I study monetary transmission via changes in contract terms for C&I loans. I find that nonprice terms tighten and price terms relax following a surprise monetary contraction, consistent with a decrease in loan supply. Adjustments in nonprice terms (maximum line size, covenants, and collateral requirements) are responsible for a statistically significant decrease in GDP of about 0.3 percentage point following a monetary surprise. I also document a lag between the response in bond market credit indicators and the loan contract terms. I interpret this finding as evidence of an important interaction between these two markets.

Suggested Citation

  • Esteban Argudo, 2021. "Monetary Policy Transmission via Loan Contract Terms in the United States," International Journal of Central Banking, International Journal of Central Banking, vol. 17(70), pages 1-31, October.
    • Handle: RePEc:ijc:ijcjou:y:2021:q:4:a:3
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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