Working Paper: CEPR ID: DP14989
Authors: Jos Luis Peydr; David Elliott; Ralf Meisenzahl; Bryce C Turner
Abstract: We show that nonbanks (funds, shadow banks, fintech) affect the transmission of monetary policy to output, prices and the distribution of risk via credit supply. For identification, we exploit exhaustive US loan-level data since the 1990s, borrower-lender relationships and Gertler-Karadi monetary policy shocks. Higher policy rates shift credit supply from banks to nonbanks, thereby largely neutralizing associated consumption effects (via consumer loans), while just attenuating firm investment and house price spillovers (via corporate loans and mortgages). Moreover, different from the risk-taking channel, higher policy rates increase risk-taking, as less-regulated, more fragile nonbanks -in all credit markets- expand supply, especially to riskier borrowers.
Keywords: nonbank intermediaries; banks; monetary policy transmission; household and corporate loans; credit and risk-taking channel
JEL Codes: E51; E52; G21; G23; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher monetary policy rates (E52) | Shift of credit supply from banks to nonbanks (E51) |
| Shift of credit supply from banks to nonbanks (E51) | Mitigation of consumption effects of monetary tightening via consumer loans (E51) |
| Higher monetary policy rates (E52) | Reduction of impacts on firm investment and house prices through corporate loans and mortgages (G21) |
| Higher monetary policy rates (E52) | Increased risk-taking behavior among nonbanks (G21) |
| Increased risk-taking behavior among nonbanks (G21) | Expansion of credit supply to riskier borrowers (E51) |
| Higher historical dependence on nonbank credit (G21) | Less reduction in investment and output after monetary policy contractions (E49) |