Working Paper: CEPR ID: DP4725
Authors: Wouter Den Haan; Steven Sumner; Guy Yamashiro
Abstract: This Paper compares the responses of bank loan components to a monetary tightening with the responses to negative output shocks. Real estate and consumer loans sharply decrease during a monetary tightening but not after a negative output shock. In contrast, C&I loans (and commercial paper) sharply decrease in response to output shocks, but not in response to a monetary tightening. These results are difficult to reconcile with a bank-lending channel of monetary transmission, in which the supply of commercial and industrial (C&I) loans is constrained. Hedging and bank capital regulation provide reasons why banks may want to substitute out of real estate and consumer loans, and into C&I loans during periods of high interest rates.
Keywords: bank capital regulation; hedging; interest rates
JEL Codes: E40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Monetary tightening (E52) | Real estate loans (L85) |
| Monetary tightening (E52) | Consumer loans (G51) |
| Monetary tightening (E52) | Commercial and industrial loans (G21) |
| Nonmonetary downturn (E39) | Commercial and industrial loans (G21) |
| Nonmonetary downturn (E39) | Real estate loans (L85) |
| Nonmonetary downturn (E39) | Consumer loans (G51) |
| Monetary tightening (E52) | Shift towards safer assets (CI loans) (G51) |