Working Paper: CEPR ID: DP13616
Authors: Gyz Gyngysi; Steven Ongena; Ibolya Schindele
Abstract: We study the impact of monetary conditions on the supply of mortgage credit by banks to households. Using comprehensive credit register data from Hungary, we first establish a “bank-lending-to-households” channel by showing that monetary conditions affect the supply of mortgage credit in volume. We then study the impact of monetary conditions on the composition of mortgage credit along its currency denomination and borrower risk. We find that expansionary domestic monetary conditions increase the supply of mortgage credit to all households in the domestic currency and to risky households in the foreign currency. Because most households are unhedged, bank lending in multiple currencies may involve additional risk taking. Changes in foreign monetary conditions affect lending in the foreign currency more than in the domestic currency, and also differ in their compositional impact along firm risk.
Keywords: bank balance-sheet channel; household lending; monetary policy; foreign currency lending
JEL Codes: E51; F3; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Expansionary domestic monetary conditions (E49) | Increase in the supply of mortgage credit to households (G21) |
| Decrease in domestic interest rates (E43) | Increase in mortgage credit supply by low-capitalized banks (G21) |
| Expansionary monetary policy (E52) | Stimulate lending to risky borrowers in foreign currencies (F65) |
| Changes in foreign monetary conditions (F31) | Affect lending in foreign currencies more than in domestic currencies (F65) |