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The second moments matter: The response of bank lending behavior to macroeconomic uncertainty

  • Christopher F. Baum

    ()

  • Mustafa Caglayan
  • Neslihan Ozkan

In this paper we investigate whether macroeconomic uncertainty could distort banks’ allocation of loanable funds. To provide a road- map for our empirical investigation, we present a simple framework which demonstrates that lower uncertainty about the return from lending should lead to a more unequal distribution of lending across banks as managers take advantage of more precise knowledge of different lending opportunities. When bank-specific differences in lending opportunities are harder to predict, we should observe less cross-sectional variation in loan-to-asset ratios. Using a comprehensive U.S. commercial bank data set, we receive support for our hypothesis.

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File URL: http://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp04-13.pdf
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Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 04/13.

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Date of creation: May 2004
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Handle: RePEc:lec:leecon:04/13
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