Working paper/research report

Publication year: 2022

DOI Link: https://doi.org/10.2139/ssrn.4000366

Abstract: 

The Fed’s Senior Loan Officer Opinion Survey (SLOOS) is widely considered a good indicator of banks’ lending conditions. We use the change in corporate bond spreads on SLOOS release days to instrument changes in lending standards. A series of estimated IV local projections shows that lending standards have highly significant effects on macroeconomic and financial variables. A relaxation of standards expands economic activity and eases financial conditions. We then use the change in spreads and the change in the VIX index on release days to identify a pure credit supply shock and a risk-taking shock using sign restrictions in a Bayesian VAR model. We find that an easing in lending has different consequences for both types of shocks. While the VIX, the excess bond premium and stock prices decrease after a pure credit supply shock, they increase after a risk-taking shock.

Harvard Citation style: Hafemann, L. and Tillmann, P. (2022) Lending Standards and the Business Cycle: Evidence from Loan Survey Releases. https://doi.org/10.2139/ssrn.4000366

APA Citation style: Hafemann, L., & Tillmann, P. (2022). Lending Standards and the Business Cycle: Evidence from Loan Survey Releases. https://doi.org/10.2139/ssrn.4000366