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Bank Lending Standards, Loan Demand, and the Macroeconomy: Evidence from the Emerging Market Bank Loan Officer Survey

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  • Sangyup Choi

    (Yonsei University)

Abstract

Despite renewed interest spurred by the global financial crisis, identifying a bank loan supply shock from demand-side factors remains challenging. While existing sigh-restriction studies often rely on the bank lending rate and the loan volume to identify a loan supply shock, they implicitly assume that the observed interest rate always equates supply and demand for loans. Using bank loan officer survey from eight emerging market economies (EMEs), I document a distinct cyclical pattern of bank lending standards and loan demand in the EMEs from that in the U.S. or the Euro area. Using quarterly Korean data, I demonstrate that a conventional sign-restriction approach could result in a misguided interpretation of credit slowdown when credit rationing or non-price lending terms exist. To resolve this issue, I propose an alternative identifying scheme by exploiting the information from bank loan officer survey and find that a negative loan supply shock has a strong adverse effect on output, followed by a decline in inflation and the policy rate.

Suggested Citation

  • Sangyup Choi, 2018. "Bank Lending Standards, Loan Demand, and the Macroeconomy: Evidence from the Emerging Market Bank Loan Officer Survey," Working papers 2018rwp-126, Yonsei University, Yonsei Economics Research Institute.
  • Handle: RePEc:yon:wpaper:2018rwp-126
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    Cited by:

    1. Sangyup Choi, 2019. "Changes in the Effects of Bank Lending Shocks and the Development of Public Debt Markets," Working papers 2019rwp-140, Yonsei University, Yonsei Economics Research Institute.

    More about this item

    Keywords

    Bank loan officer survey; Sign-restriction VARs; Bank lending shocks; Emerging market economies; Credit market imperfections;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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

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