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Dynamic effects of financial spillovers on bank lending: evidence from local projection-based impulse response analysis

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  • Wang Chen
  • Shigeyuki Hamori
  • Takuji Kinkyo

Abstract

Using local projections, we find that a positive (detrimental) financial stress (FS) shock affects bank lending more quickly and is more persistent than a negative (benign) FS shock. The study confirms that there is timing asymmetry, but we do not find magnitude asymmetry between positive and negative shocks. Furthermore, we find that a bank balance sheet characterized by a higher level of liquidity and efficiency and a lower level of leverage tends to better insulate lending from the impact of FS spillovers. Our findings have important implications for policymakers who seek to develop more efficient and resilient banking sectors.

Suggested Citation

  • Wang Chen & Shigeyuki Hamori & Takuji Kinkyo, 2020. "Dynamic effects of financial spillovers on bank lending: evidence from local projection-based impulse response analysis," Applied Economics Letters, Taylor & Francis Journals, vol. 27(5), pages 400-405, March.
    • Handle: RePEc:taf:apeclt:v:27:y:2020:i:5:p:400-405
    DOI: 10.1080/13504851.2019.1619011
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    Cited by:

    1. Helmut Franken & Alejandro Jara, 2023. "Monetary Policy Tightening and Bank Lending Standards: Evidence from the Chilean Bank Loan Survey," Working Papers Central Bank of Chile 996, Central Bank of Chile.
    2. Nguyen, Dinh Trung & Duong, Kim Thanh, 2024. "Financial stress and shadow economy: A global study from a new worldwide database," Finance Research Letters, Elsevier, vol. 60(C).

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