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

July 1, 2008

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Tamim Bayoumi, and Ola Melander. Credit Matters: Empirical Evidence on U.S. Macro-Financial Linkages, (USA: International Monetary Fund, 2008) accessed September 20, 2024

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.

Subject: Bank credit, Banking, Credit, Loans, Personal income

Keywords: Asset ratio, Bank loan, Credit market, Disposable income, Home equity, Loan standard, WP

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/169
Stock No:

WPIEA2008169
ISBN:

9781451870275
ISSN:

1018-5941

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