Patrick K. Asea, S. Brock Blomberg
NBER Working Paper No. 5951
We investigate the lending behavior of banks by exploiting a rich panel dataset on the contract terms of approximately two million commercial and industrial loans granted by 580 banks between 1977-1993. Using a Markov switching panel model we demonstrate that banks change their lending standards from tightness to laxity systematically over the cycle. We then use an efficient minimum chi-square estimator to examine the relationship between the cyclical component of aggregate unemployment and bank lending standards when both variables are jointly endogenously determined in a system of simultaneous equations with mixed, continuous/discrete dependent variables. The patterns we uncover suggest that lax lending standards that tend to occur during expansions exert considerable influence on the dynamics of aggregate fluctuations.
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Document Object Identifier (DOI): 10.3386/w5951
Published: Asea, Patrick K. & Blomberg, Brock, 1998. "Lending cycles," Journal of Econometrics, Elsevier, vol. 83(1-2), pages 89-128. citation courtesy of
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