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How Much Have Lending Standards Constrained US Recovery After the Financial Crisis?

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  • Martin Fukač

Abstract

This article uses a stylised vector autoregression to estimate the impact of shocks to lending standards on the depth of US recession and duration of recovery from the 2007−2008 financial crisis. It estimates that the US economic activity was about 0.5 percentage points lower every quarter than in the case when banks’ lending standards had not tightened beyond the levels warranted by economic fundamentals. The article further shows empirical evidence that the economic contraction of 2008−2009 would have been 2 percentage points of GDP milder in the absence of the shocks to lending standards sentiment. Finally, the lending sentiment seemed to switch to a loosening bias when GDP recovered to its pre‐recession levels in 2012.

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  • Martin Fukač, 2019. "How Much Have Lending Standards Constrained US Recovery After the Financial Crisis?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 52(1), pages 116-126, March.
    • Handle: RePEc:bla:ausecr:v:52:y:2019:i:1:p:116-126
    DOI: 10.1111/1467-8462.12309
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    1. Szilárd Benk & Max Gillman & Michal Kejak, 2005. "Credit Shocks in the Financial Deregulatory Era: Not the Usual Suspects," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(3), pages 668-687, July.
    2. Simon Gilchrist & Egon Zakrajsek, 2012. "Credit Spreads and Business Cycle Fluctuations," American Economic Review, American Economic Association, vol. 102(4), pages 1692-1720, June.
    3. Gilchrist, Simon & Yankov, Vladimir & Zakrajsek, Egon, 2009. "Credit market shocks and economic fluctuations: Evidence from corporate bond and stock markets," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 471-493, May.
    4. Cara S. Lown & Donald P. Morgan & Sonali Rohatgi, 2000. "Listening to loan officers: the impact of commercial credit standards on lending and output," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 1-16.
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