William F. Bassett, Mary Beth Chosak, John C. Driscoll, and Egon Zakrajsek
Abstract: Identifying macroeconomic effects of credit shocks is difficult because many of the same factors that influence the supply of loans also affect the demand for credit. Using bank-level responses to the Federal Reserve's Loan Officer Opinion Survey, we construct a new credit supply indicator: changes in lending standards, adjusted for the macroeconomic and bank-specific factors that also affect loan demand. Tightening shocks to this credit supply indicator lead to a substantial decline in output and the capacity of businesses and households to borrow from banks, as well as to a widening of credit spreads and an easing of monetary policy.
Keywords: Credit supply disruptions, bank lending policies, credit crunchFull paper (459 KB PDF) | Data - Excel file (14 KB XLS) | Data - Screen reader