Identifying the Macroeconomic Effect of Loan Supply Shocks

• Published in: Journal of money, credit and banking Vol. 35; no. 6; pp. 931 - 946
• Main Authors: Peek, Joe, Rosengren, Eric S., Geoffrey M. B. Tootell
• Format: Journal Article
• Language: English
• Published: Columbus Ohio State University Press 01.12.2003; The Ohio State University Press; John Wiley & Sons, Inc
• Subjects: Analysis; Bank credit; Bank loans; Banking industry; Banking system; Banks; Capital markets; Company business management; Confidentiality; Credit; Demand loans; Economic forecasting; Economic impact; Economic theory; Finance; Forecasts; Forecasts and trends; GDP; Gross Domestic Product; Inventories; Loans; Macroeconomics; Management; Market trend/market analysis; Monetary policy; Proxy reporting; Proxy statements; Studies; Supply; Supply and demand; Supply shock; Supply shocks; Europe; United States > US
• ISSN: 0022-2879; 1538-4616; 1538-4616
• DOI: 10.1353/mcb.2003.0046

The inability to clearly distinguish the effects of shocks to loan supply from those to loan demand has made it difficult to quantify the economic importance of the credit channel in the transmission mechanism of monetary policy. This study provides an innovative approach to identifying loan supply shocks. Three different results confirm that loan supply shocks have been successfully isolated from shifts in loan demand. Our measure is particularly important for explaining inventory movements, the component of GDP most dependent on bank lending; the effect is present even during periods with strong loan demand; and the effect remains even when the unpredictable part of the loan supply shock is isolated. This identification enables us to show that loan supply shocks have had economically important effects on the U.S. economy.