The Credit Cycle and the Business Cycle: New Findings Using the Loan Officer Opinion Survey

By Cara S. Lown, Donald P. Morgan. 2006

620 citations recorded by the source corpus.

VAR analysis on a measure of bank lending standards collected by the Federal Reserve reveals that shocks to lending standards are significantly correlated with innovations in commercial loans at banks and in real output. Credit standards strongly dominate loan rates in explaining variation in business loans and output. Standards remain significant when we include various proxies for loan demand, suggesting that part of the standards fluctuations can be identified with changes in loan supply. Standards are also significant in structural equations of some categories of inventory investment, a GDP component closely associated with bank lending. The estimated impact of a moderate tightening of standards on inventory investment is of the same order of magnitude as the decline in inventory investment over the typical recession.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/bf9046680a48e934b2a5d0daeccd1d060120f7ac

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Citations in the corpus

Disentangling Demand and Supply in Credit Developments: A Survey-Based Analysis for Italy (2011, methodology): “…in other studies considering a monetary policy interest rate, including papers that also analyze the information content of bank lending surveys (Lown and Morgan 2006 for the US and de Bondt et al. 2010 for the euro area).15 The estimated effects of all BLS variables decrease somewhat, but the…”
The financial accelerator in an evolving credit network (2010, background): “, 2008, provide an empirical analysis of these aspects): the financial fragility of agents affects the business cycle (Bernanke and Gertler, 1989; Lown and Morgan, 2006) which in turn influences agents’ financial conditions (Allen and Saunders, 2004; Misina et al.”
Income Distribution, Credit and Fiscal Policies in an Agent-Based Keynesian Model (2013, positive): “…sheet and bank lending channels have received empirical support from time-series studies (e.g. Bernanke and Blinder, 1992; Kashyap et al., 1993; Lown and Morgan, 2006; Claessens et al., 2009) as well as from cross-sectional ones (e.g. Fazzari et al., 1988; Gertler and Gilchrist, 1994; Kashyap…”
Bank Risk-Taking, Securitization, Supervision and Low Interest Rates: Evidence from the Euro Area and the U.S. Lending Standards (2010, positive): “Panel A shows the results for the Euro area and Panel B for the U.S., where we use data on 24 Comparing our U.S. results with those from Lown and Morgan (2006), we find that monetary policy rates affect lending standards, but mainly when we control for long-term interest rates (see the results in…”
The Impact of Supply Constraints on Bank Lending in the Euro Area - Crisis Induced Crunching? (2010, background): “…bank lending survey (in the case of the US, in the Senior Loan Officer Opinion Survey) to study the impact on loan growth, financing conditions more generally and on economic activity (see e.g.; Lown and Morgan, 2006; Bayoumi and Melander, 2008; Maddaloni and Peydró, 2009; De Bondt et al., 2010).”
Macroeconomic Cycles and the Stock Market's Reaction to Monetary Policy (2008, positive): “Lown and Morgan (2006) show that bank credit standards from the Fed’s Senior Loan Officer Opinion Survey predict changes in lending and business activity.”
The External Finance Premium and the Macroeconomy: Us Post-Wwii Evidence (2008, neutral): “Moreover, we also nd that our estimate of the external nance premium bears close resemblance to other indicators of strain in the availability of external nance, such as credit standards (Lown and Morgan, 2006).”
Issuer Quality and Corporate Bond Returns (2013, neutral): “… Empirically, ISSEDF appears to partially reflect changes in bank lending standards: changes in ISSEDF are -0.51 correlated with the Federal Reserve’s Senior Loan Officer Opinion Survey of changes in the stricture of bank lending standards from 1967-1983 (see Lown and Morgan (2006)) and 1990-2008.”
Credit Matters: Empirical Evidence on U.S. Macro-Financial Linkages (2008, methodology): “For example, Lown and Morgan (2006) find that loan standards are affected by the CAR, but not by GDP.”
What Happens During Recessions, Crunches, and Busts? (2008, positive): “Credit standards (more than the volume of credit) are negatively correlated with economic activity (Lown and Morgan, 2006).”