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The Credit Cycle and the Business Cycle: New Findings Using the Loan Officer Opinion Survey

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  • Lown, Cara
  • Morgan, Donald P.

    (Federal Reserve Bank of New York)

Abstract

VAR analysis on a measure of bank lending standards collected by the Federal Reserve reveals that shocks to lending standards are significantly correlated with innovations in commercial loans of banks and in real output. Credit standards strongly dominate loan rates in explaining variation in business loans and output. Standards remain significant when we include various proxies for loan demand, suggesting that part of the standards fluctuations can be identified with changes in loan supply. Standards are also significant in structural equations of some categories of inventory investment, a GDP component closely associated with bank lending. The estimated impact of a moderate tightening of standards on inventory investment is of the same order of magnitude as the decline in inventory investment over the typical recession.

Suggested Citation

  • Lown, Cara & Morgan, Donald P., 2004. "The Credit Cycle and the Business Cycle: New Findings Using the Loan Officer Opinion Survey," SIFR Research Report Series 27, Institute for Financial Research.
  • Handle: RePEc:hhs:sifrwp:0027
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    References listed on IDEAS

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    More about this item

    Keywords

    Credit crunch; Credit rationing; Credit standards; Loan officer survey;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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