Loan Commitments and Monetary Policy
George Sofianos, Arie Melnik, Paul Wachtel
NBER Working Paper No. 2232 (Also Reprint No. r1518)
The impact of loan commitment agreements on the way in which changes in monetary policy affects the economy is examined. In particular, the empirical relevance of quantity credit rationing in the transmission of monetary policy is studied with VAR models. We find evidence of a differential impact of monetary policy on loans under commitment and not under commitment. Our conclusion is that credit rationing for bank loans does occur, although loan commitments effectively protect borrowers from credit rationing. Thus, loan commitments which insulate borrowers from the effects of quantity rationing force monetary policy to work exclusively through interest rate channels.
Published: Journal of Banking and Finance, Vol. 14, pp. 677-689, (1990).