Working Paper: CEPR ID: DP10547
Authors: Gert Peersman; Wolf Wagner
Abstract: Shocks to bank lending, risk-taking and securitization activities that are orthogonal to real economy and monetary policy innovations account for more than 30 percent of U.S. output variation. The dynamic effects, however, depend on the type of shock. Expansionary securitization shocks lead to a permanent rise in real GDP and a fall in inflation. Bank lending and risk-taking shocks, in contrast, have only a temporary effect on real GDP and tend to lead to a (moderate) rise in the price level. Furthermore, there is evidence for a strong search-for-yield effect on the side of investors in the transmission mechanism of monetary policy. These effects are estimated with a structural VAR model, where the shocks are identified using a model of bank risk-taking and securitization.
Keywords: bank lending; risk taking; securitization; SVAR
JEL Codes: C32; E30; E44; E51; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| risk-taking shock (D80) | banks' costs of holding risks (G21) |
| securitization shock (F65) | attractiveness of securitizing loans (G21) |
| lending shock (G21) | profitability of extending loans (G21) |
| lending risk-taking shock (G21) | U.S. output variation (N12) |
| securitization shock (F65) | real GDP (E20) |
| securitization shock (F65) | inflation (E31) |
| bank lending shock (G21) | real GDP (E20) |
| bank lending shock (G21) | price level (E30) |
| risk-taking shock (D80) | real GDP (E20) |
| risk-taking shock (D80) | price level (E30) |
| search-for-yield effect (G14) | transmission mechanism of monetary policy (E52) |