Skip to main content Accessibility help
×
Home

Business Loans and the Transmission of Monetary Policy

  • Santiago Barraza, Andrea Civelli and Nicola Zaniboni

Abstract

We study the transmission mechanism of monetary policy through business loans and illustrate subtle aspects of its functioning that relate to the contractual characteristics and the borrower–lender types of loans. We show that the puzzling increase in business loans in response to monetary tightening, documented before the Great Recession, is largely driven by drawdowns from existing commitments at large banks. Spot loans also rise and take a considerable amount of time to adjust. Banks, nonetheless, do curtail credit supply by shortening maturities of new loans. Following the Great Recession, the mechanism has worked differently, with loan responses to monetary tightening displaying a significant downward shift.

Copyright

Corresponding author

*Barraza, santiago.barraza@fulbrightmail.org, Universidad de San Andrés; Civelli (corresponding author), andrea.civelli@gmail.com, University of Arkansas; and Zaniboni, nzaniboni77@gmail.com, Transparent Value, LLC.

Footnotes

Hide All
1

[The views expressed here are those of the author and not necessarily those of Guggenheim Partners or its subsidiaries]. We thank Jarrad Harford (the editor). We thank especially John Duca (the referee) for insightful suggestions that significantly contributed to this work. We also thank Allen Berger, Francesco Bianchi, Lamont Black, Steve Dennis, Wayne Lee, Alexey Malakhov, Bradley Paye, Fabiana Penas, Horacio Sapriza, Gustavo Suárez, Tim Yeager, seminar participants at Universidad de San Andrés and University of Arkansas, and conference participants at the 2017 Financial Management Association European Conference and the 2017 Latin American and Caribbean Economic Association Meeting (LACEA)–Latin American Meeting of the Econometric Society (LAMES) Conference for helpful comments and suggestions. This research was supported with a grant from the Bank of America Research Fund Honoring James H. Penick. We are also indebted to Thomas Allard, Sam Haltenhof, Thomas Spiller, and, particularly, William English, for helping us obtain the Survey of Terms of Business Lending (STBL) data from the Board of Governors of the Federal Reserve System. Any errors or omissions are our own.

Footnotes

References

Hide All
Adrian, T.; Colla, P.; and Shin, H. S.. “Which Financial Frictions? Parsing the Evidence from the Financial Crisis of 2007 to 2009.” NBER Macroeconomics Annual, 27 (2012), 159214.
Allen, P. R., and Wilhelm, W. J.. “The Impact of the 1980 Depository Institutions Deregulation and Monetary Control Act on Market Value and Risk: Evidence from the Capital Markets.” Journal of Money, Credit and Banking, 20 (1988), 364380.
Barclay, M. J., and C. W. Smith, J.. “The Maturity Structure of Corporate Debt.” Journal of Finance, 50 (1995), 609631.
Barnett, W. A.Economic Monetary Aggregates: An Application of Index Number and Aggregation Theory.” Journal of Econometrics, 14 (1980), 1148.
Baumeister, C., and Benati, L.. “Unconventional Monetary Policy and the Great Recession: Estimating the Macroeconomic Effects of a Spread Compression at the Zero Lower Bound.” International Journal of Central Banking, 9 (2013), 165212.
Becker, B., and Ivashina, V.. “Cyclicality of Credit Supply: Firm Level Evidence.” Journal of Monetary Economics, 62 (2014), 7693.
Berger, A. N.; Demsetz, R. S.; and Strahan, P. E.. “The Consolidation of the Financial Services Industry: Causes, Consequences, and Implications for the Future.” Journal of Banking and Finance, 23 (1999), 135194.10.1016/S0378-4266(98)00125-3
Berger, A. N.; Kashyap, A. K.; and Scalise, J. M.. “The Transformation of the U.S. Banking Industry: What a Long, Strange Trip It’s Been.” Brookings Papers on Economic Activity, 2 (1995), 55218.10.2307/2534612
Berger, A. N.; Miller, N. H.; Petersen, M. A.; Rajan, R. G.; and Stein, J. C.. “Does Function Follow Organizational Form? Evidence from the Lending Practices of Large and Small Banks.” Journal of Financial Economics, 76 (2005), 237269.
Berger, A. N., and Udell, G. F.. “Some Evidence on the Empirical Significance of Credit Rationing.” Journal of Political Economy, 100 (1992), 10471077.
Bernanke, B. S., and Gertler, M.. “Inside the Black Box: The Credit Channel of Monetary Policy Transmission.” Journal of Economics Perspectives, 9 (1995), 2748.
Bester, H.Screening vs. Rationing in Credit Markets with Imperfect Information.” American Economic Review, 75 (1985), 850855.
Bianchi, F.Methods for Measuring Expectations and Uncertainty in Markov-Switching Models.” Journal of Econometrics, 190 (2016), 7999.
Bianchi, F.; Lettau, M.; and Ludvigson, S. C.. “Monetary Policy and Asset Valuation.” Working Paper, Duke University (2017).
Black, L. K., and Rosen, R. J.. “Monetary Policy, Loan Maturity, and Credit Availability.” International Journal of Central Banking, 12 (2016), 199230.
Calem, P.The New Bank Deposit Markets: Goodbye to Regulation Q.” Business Review, Federal Reserve Bank of Philadelphia, Nov.–Dec. (1985), 1929.
Campello, M.; Giambona, E.; Graham, J. R.; and Harvey, C. R.. “Liquidity Management and Corporate Investment During a Financial Crisis.” Review of Financial Studies, 24 (2011), 19441979.
Christiano, L. J.; Eichenbaum, M.; and Evans, C. L.. “Identification and the Effects of Monetary Policy Shocks.” In Financial Factors in Economic Stabilization and Growth, Blejer, M., Eckstein, Z., Hercowitz, Z., and Leiderman, L., eds. Cambridge, UK: Cambridge University Press (1996a), 3674.
Christiano, L. J.; Eichenbaum, M.; and Evans, C. L.. “The Effects of Monetary Policy Shocks: Evidence from the Flow of Funds.” Review of Economics and Statistics, 78 (1996b), 1634.
Christiano, L. J.; Eichenbaum, M.; and Evans, C. L.. “Monetary Policy Shocks: What Have We Learned and to What End? ” In Handbook of Macroeconomics, Taylor, J. B. and Woodford, M., eds. Amsterdam, Netherlands: North-Holland (1999), 65148.
Correa, R.; Paligorova, T.; Sapriza, H.; and Zlate, A.. “Cross-Border Bank Flows and Monetary Policy.” FRB International Finance Discussion Paper No. 1241 (2018). Available at http://dx.doi.org/10.17016/IFDP.2018.1241.
Covitz, D.; Liang, N.; and Suárez, G.. “The Evolution of a Financial Crisis: Collapse of the Asset-Backed Commercial Paper Market.” Journal of Finance, 68 (2013), 815848.
Datta, S.; Iskandar-Datta, M.; and Raman, K.. “Managerial Stock Ownership and the Maturity Structure of Corporate Debt.” Journal of Finance, 60 (2005), 23332350.
Dell’Ariccia, G.; Laeven, L.; and Suárez, G.. “Monetary Policy and Bank Lending Terms: Evidence from US Loans.” Working Paper, International Monetary Fund, European Central Bank, and the Federal Reserve System Board of Governors (2017).
Demiroglu, C.; James, C.; and Kizilaslan, A.. “Bank Lending Standards and Access to Lines of Credit.” Journal of Money, Credit and Banking, 44 (2012), 10651089.
den Haan, W. J.; Sumner, S. W.; and Yamashiro, G. M.. “Bank Loan Portfolios and the Monetary Transmission Mechanism.” Journal of Monetary Economics, 54 (2007), 904924.
DeYoung, R.Banking in the United States.” In The Oxford Handbook of Banking, Berger, A. N., Molyneux, P., and Wilson, J. O. S., eds. Oxford, UK: Oxford University Press (2014), 825848.
Diamond, D. W.Debt Maturity Structure and Liquidity Risk.” Quarterly Journal of Economics, 106 (1991), 709737.
Doan, T.; Litterman, R.; and Sims, C.. “Forecasting and Conditional Projection Using Realistic Prior Distributions.” Econometric Reviews, 3 (1984), 1100.
Duca, J. V.How Capital Regulation and Other Factors Drive the Role of Shadow Banking in Funding Short-Term Business Credit.” Journal of Banking and Finance, 69 (2016), S10S24.
Duca, J. V., and Vanhoose, D. D.. “Loan Commitments and Optimal Monetary Policy.” Journal of Money, Credit and Banking, 22 (1990), 178194.
Duca, J. V., and Wu, T.. “Regulation and the Neo-Wicksellian Approach to Monetary Policy.” Journal of Money, Credit, and Banking, 41 (2009), 799807.
English, W. B.Financial Consolidation and Monetary Policy.” Federal Reserve Bank of New York Economic Policy Review, May (2002), 271284.
Fan, J. P. H.; Titman, S.; and Twite, G.. “An International Comparison of Capital Structure and Debt Maturity Choices.” Journal of Financial and Quantitative Analysis, 47 (2012), 2356.
Francis, N. R.; Jackson, L. E.; and Owyang, M. T.. “How Has Empirical Monetary Policy Analysis Changed After the Financial Crisis?” Federal Reserve Bank of St. Louis, Working Paper 2014-019C (2017).
Freixas, X., and Rochet, J.-C.. Microeconomics of Banking. Cambridge, MA: MIT Press (2008).
Geanakoplos, J.The Leverage Cycle.” NBER Macroeconomics Annual, 24 (2010), 165.
Gertler, M., and Gilchrist, S.. “The Role of Credit Market Imperfections in the Monetary Transmission Mechanism: Arguments and Evidence.” Scandinavian Journal of Economics, 95 (1993), 4364.
Gertler, M., and Gilchrist, S.. “Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms.” Quarterly Journal of Economics, 109 (1994), 309340.
Giannone, D.; Lenza, M.; and Primiceri, G.. “Prior Selection for Vector Autoregressions.” Review of Economics and Statistics, 97 (2015), 436451.
Gilbert, A.Requiem for Regulation Q: What It Did and Why It Passed Away.” Review, Federal Reserve Bank of St. Louis, Feb. (1986), 2237.
Gorton, G., and Metrick, A.. “Securitized Banking and the Run on Repo.” Journal of Financial Economics, 104 (2012), 425451.
Goyal, V. K., and Wang, W.. “Debt Maturity and Asymmetric Information: Evidence from Default Risk Changes.” Journal of Financial and Quantitative Analysis, 48 (2013), 789817.
Hamilton, J. Time Series Analysis. Princeton, NJ: Princeton University Press (1994).
Hanson. “The ‘Price Puzzle’ Reconsidered.” Journal of Monetary Economics, 51(2004), 13851413.
He, Z., and Xiong, W.. “Rollover Risk and Credit Risk.” Journal of Finance, 67 (2012), 391429.
Ivashina, V.Asymmetric Information Effects on Loan Spreads.” Journal of Financial Economics, 92 (2009), 300319.
Ivashina, V., and Scharfstein, D.. “Bank Lending During the Financial Crisis of 2008.” Journal of Financial Economics, 97 (2010), 319338.
Jaffee, D. M., and Russell, T.. “Imperfect Information, Uncertainty, and Credit Rationing.” Quarterly Journal of Economics, 90 (1976), 651666.
Kashyap, A. K.; Stein, J. C.; and Wilcox, D. W.. “Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance.” American Economic Review, 83 (1993), 7898.
Krippner, L.“Zero Lower Bound Term Structure Modeling: A Practitioner’s Guide.” Working Paper, Reserve Bank of New Zealand (2015).
Lin, C.; Ma, Y.; Malatesta, P.; and Xuan, Y.. “Corporate Ownership Structure and the Choice between Bank Debt and Public Debt.” Journal of Financial Economics, 109 (2013), 517534.
Litterman, R.“Techniques of Forecasting Using Vector Autoregressions.” Federal Reserve Bank of Minneapolis, Working Paper 115 (1979).
Litterman, R.Forecasting with Bayesian Vector Autoregressions: Five Years of Experience.” Journal of Business & Economics Statistics, 4 (1986), 2538.
Lombardi, M., and Zhu, F.. “A Shadow Policy Rate to Calibrate U.S. Monetary Policy at the Zero Lower Bound.” International Journal of Central Banking, 14 (2018), 305346.
Luck, S., and Schempp, P.. “Banks, Shadow Banking, and Fragility.” Jahrestagung des Vereins für Socialpolitik (2015).
Mertens, K.Deposit Rate Ceilings and Monetary Transmission in the US.” Journal Monetary Economics, 55 (2008), 12901302.
Morgan, D. P.The Credit Effects of Monetary Policy: Evidence Using Loan Commitments.” Journal of Money, Credit and Banking, 30 (1998), 102118.
Ng, S., and Wright, J. H.. “Facts and Challenges from the Great Recession for Forecasting and Macroeconomic Modeling.” Journal of Economic Literature, 51 (2013), 11201154.
Oztekin, O.Capital Structure Decisions around the World: Which Factors Are Reliably Important?Journal of Financial and Quantitative Analysis, 50 (2015), 301323.
Pozsar, Z.; Adrian, T.; Ashcraft, A.; and Boesky, H.. “Shadow Banking.” Federal Reserve Bank of New York Economic Policy Review, Dec. (2013), 116.
Rajan, R. G., and Zingales, L.. “What Do We Know about Capital Structure? Some Evidence from International Data.” Journal of Finance, 50 (1995), 14211460.
Schreft, S. L.Credit Controls: 1980.” Economic Review, Federal Reserve Bank of Richmond, Nov.–Dec. (1990), 2555.
Sims, C. A.Interpreting the Macroeconomic Time Series Facts: The Effects of Monetary Policy.” European Economic Review, 36 (1992), 9751011.
Sims, C. A.Disentangling the Channels of the 2007–2009 Recession: Comment.” Brookings Papers on Economic Activity, Spring (2012), 141148.
Sims, C. A., and Zha, T.. “Bayesian Methods for Dynamic Multivariate Models.” International Economic Review, 39 (1998), 949968.
Sims, C. A., and Zha, T.. “Does Monetary Policy Generate Recessions?Macroeconomic Dynamics, 10 (2006), 231272.
SLOOS. “Senior Loan Officer Opinion Survey on Bank Lending Practices.” Board of Governors of the Federal Reserve System, Division of Monetary Affairs, July (2007).
Sofianos, G.; Melnik, A.; and Wachtel, P.. “Loan Commitments and Monetary Policy.” Journal of Banking and Finance, 14 (1990), 677689.
Stiglitz, J. E., and Weiss, A.. “Credit Rationing in Markets with Imperfect Information.” American Economic Review, 71 (1981), 393410.
Stock, J. H., and Watson, M. W.. “Disentangling the Channels of the 2007–2009 Recession.” Brookings Papers on Economic Activity, Spring (2012), 81156.
Stohs, M. H., and Mauer, D. C.. “The Determinants of Corporate Debt Maturity Structure.” Journal of Business, 69 (1996), 279312.
Tirole, J. The Theory of Corporate Finance. Princeton, NJ: Princeton University Press (2006).
Titman, S., and Wessels, R.. “The Determinants of Capital Structure Choice.” Journal of Finance, 43 (1988), 119.
Todd, R. M.Improving Economic Forecasting with Bayesian Vector Autoregression.” Federal Reserve Bank of Minneapolis Quarterly Review, 8 (1984), 1829.
Uhlig, H.What Are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure.” Journal of Monetary Economics, 52 (2005), 381419.
Woodford, M.Loan Commitments and Optimal Monetary Policy.” Journal of Monetary Economics, 37 (1996), 573605.
Wu, J. C., and Xia, F. D.. “Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound.” Journal of Money, Credit and Banking, 48 (2016), 253291.
Type Description Title
UNKNOWN
Supplementary materials

Barraza et al. supplementary material
Internet Appendix

 Unknown (552 KB)
552 KB

Business Loans and the Transmission of Monetary Policy

  • Santiago Barraza, Andrea Civelli and Nicola Zaniboni

Metrics

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed