Title Aggregate uncertainty and the supply of credit / prepared by Fabián Valencia

Published [Washington, D.C.] : International Monetary Fund, ©2013

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Description 1 online resource (26 pages) Series IMF working paper ; WP/13/241 IMF working paper ; WP/13/241. Contents Cover; Contents; I: Introduction; List of Figures; 1 Loan Growth and Uncertainty; II: Theoretical Framework; 2 Marginal Value of Bank Capital and Optimal Lending Function; III: Empirical Analysis; List of Tables; 1 Summary Statistics; 2 Regression Results; 3 Bank Capitalization and Bank Size; 3 Subsamples and Year Fixed Effects; 4 Alternative Measures of Uncertainty; 4 Fraction of C & I loans under commitment; 5 Loan type and bank size; 6 Bank Capital and Lending Channels of Monetary Policy; IV: Conclusions; References; Appendices; I: Numerical Solution Method; 7 Parameter Values Summary Recent studies show that uncertainty shocks have quantitatively important effects on the real economy. This paper examines one particular channel at work: the supply of credit. It presents a model in which a bank, even if managed by risk-neutral shareholders and subject to limited liability, can exhibit self-insurance, and thus loan supply contracts when uncertainty increases. This prediction is tested with the universe of U.S. commercial banks over the period 1984-2010. Identification of credit supply is achieved by looking at the differential response of banks according to their level of capitalization. Consistent with the theoretical predictions, increases in uncertainty reduce the supply of credit, more so for banks with lower levels of capitalization. These results are weaker for large banks, and are robust to controlling for the lending and capital channels of monetary policy, to different measures of uncertainty, and to breaking the dataset in subsamples. Quantitatively, uncertainty shocks are almost as important as monetary policy ones with regards to the effects on the supply of credit Notes "November 2013." Bibliography Includes bibliographical references Notes Online resource; title from pdf title page (IMF.org Website, viewed January 3, 2014) Subject Credit -- United States -- Econometric models Uncertainty -- Econometric models Risk -- United States -- Econometric models Banks and banking -- United States -- Econometric models Banks and banking -- Econometric models Credit -- Econometric models Risk -- Econometric models Uncertainty -- Econometric models United States Form Electronic book Author International Monetary Fund, issuing body. ISBN 9781475513936 1475513933 9781475518580 1475518587

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