Pirozhkova, Ekaterina (2017) Bank loan components, uncertainty and monetary transmission mechanism. Working Paper. Birkbeck, University of London, London, UK.
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Abstract
We study the dynamic characteristics of bank loan components and seek to resolve the puzzle raised by den Haan et al. (2007) that commercial and industrial loans increase following monetary contraction. By estimating a set of structural vector autoregression models on US data for 1954-2015, we demonstrate that when risk and balance sheet factors are controlled for, business loans decrease after monetary tightening, what is consistent with bank-lending channel of monetary policy transmission mechanism. This result is robust to VAR specification and to the measure of uncertainty employed. We distinguish between volatility measures of uncertainty and measures of uncertainty as vagueness/”unknownness” of economic outlook and show that business loans go down following uncertainty shock only after the latter uncertainty measure is used. We demonstrate that controlling for risk factors is critical for explaining the dynamic properties of business loans, as variance of business loans is driven by innovations to uncertainty and credit risk to the greater extent than by innovations to macroeconomic variables.
Metadata
| Item Type: | Monograph (Working Paper) |
|---|---|
| Additional Information: | BCAM 1702; ISSN 1745-8587 |
| Keyword(s) / Subject(s): | Uncertainty, Bank loans, Vector autoregression. |
| School: | Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School |
| Research Centres and Institutes: | Applied Macroeconomics, Birkbeck Centre for |
| Depositing User: | Administrator |
| Date Deposited: | 21 Mar 2019 16:19 |
| Last Modified: | 02 Aug 2023 17:49 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/26668 |
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