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Hazardous times for monetary policy: What do twenty-three million bank loans say about the effects of monetary policy on credit risk?


Ongena, Steven; Gabriel, Jimenez; Peydró, José Luis; Saurina, Jesús (2014). Hazardous times for monetary policy: What do twenty-three million bank loans say about the effects of monetary policy on credit risk? Econometrica, 82(2):463-505.

Abstract

We identify the effects of monetary policy on bank risk-taking with an exhaustive credit register containing loan contracts and applications since 1984. We separate the compositional changes in the credit supply from the demand, firm and bank balance-sheet channels by accounting for both observed and unobserved time-varying firm and bank heterogeneity through time*firm and time*bank fixed effects. A lower overnight interest rate induces lower capitalized banks to expand and prolong credit to riskier firms, and to lend to riskier new applicants, granting them loans that are larger and longer-term. A lower long-term rate, however, has smaller or no such effects.

Abstract

We identify the effects of monetary policy on bank risk-taking with an exhaustive credit register containing loan contracts and applications since 1984. We separate the compositional changes in the credit supply from the demand, firm and bank balance-sheet channels by accounting for both observed and unobserved time-varying firm and bank heterogeneity through time*firm and time*bank fixed effects. A lower overnight interest rate induces lower capitalized banks to expand and prolong credit to riskier firms, and to lend to riskier new applicants, granting them loans that are larger and longer-term. A lower long-term rate, however, has smaller or no such effects.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:March 2014
Deposited On:21 Feb 2014 07:55
Last Modified:05 Apr 2016 17:39
Publisher:Wiley-Blackwell
ISSN:0012-9682
Publisher DOI:https://doi.org/10.3982/ECTA10104
Official URL:http://onlinelibrary.wiley.com/doi/10.3982/ECTA10104/abstract
Other Identification Number:merlin-id:8423

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