Credit Matters : Empirical Evidence on U.S. Macro-Financial Linkages

Author/Editor:

Tamim Bayoumi ; Ola Melander

Publication Date:

July 1, 2008

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper develops a framework for analyzing macro-financial linkages in the United States. We estimate the effects of a negative shock to banks' capital/assetratio on lending standards, which in turn affect consumer credit, mortgages, and corporate loans, and the corresponding components of private spending (consumption, residential investment and business investment). In addition, our empirical model allows for feedback from spending and income to bank capital adequacy and credit. Hence, we trace the full credit cycle. An exogenous fall in the bank capital/asset ratio by one percentage point reduces real GDP by some 1½ percent through its effects on credit availability, while an exogenous fall in demand of 1 percent of GDP is gradually magnified to around 2 percent through financial feedback effects.

Series:

Working Paper No. 08/169

Subject:

English

Publication Date:

July 1, 2008

ISBN/ISSN:

9781451870275/1018-5941

Stock No:

WPIEA2008169

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

27

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