Journal of Financial and Quantitative Analysis · 2018 · 19 citations · 68 references
Social SciencesBusiness EconomicsEconomicsBankingFinancial EconomicsMonetary EconomicsBusiness CyclesCommercial BankingMonetary PolicyMonetary Transmission MechanismCredit Supply ConstraintsCredit Supply ShocksLoan Supply ChannelMonetary Policy DynamicsMonetary Policy Shock TransmissionMonetary Policy ShocksMonetary Policy Transmission MechanismMonetary Tightening
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.
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