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

Author/Editor: Bayoumi, Tamim ; Melander, Ola
Publication Date: July 01, 2008
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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(s): United States | Credit | External shocks | Capital markets | Asset ratio | Consumer credit | Corporate sector | Loans | Gross domestic product

Author's Keyword(s): Macro-Financial | Credit | Lending Standards | Bank Capital | Financial Accelerator
Publication Date: July 01, 2008
Format: Paper
Stock No: WPIEA2008169 Pages: 27
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