Has Weak Lending and Activity in the <scp>UK</scp> been Driven by Credit Supply Shocks?

Barnett, Alina; Thomas, Ryland

doi:10.1111/manc.12071

Cited by 30 publications

(24 citation statements)

References 38 publications

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“…In order to analyze the recent crisis, we also present the historical decomposition between 2007Q1 and 2014Q4. In line with other studies (Barnett and Thomas, 2014;Finlay and Jääskelä, 2014), Figure 7 shows supply shocks were dragging down GDP growth in the period immediately preceding and during the crisis, their effect in the last two years is positive, which probably reflects the lack of global and domestic inflationary pressures.…”

Section: Baseline Resultssupporting

confidence: 90%

“…Most empirical studies on loan supply shocks use Bayesian SVAR with sign restrictions. Barnett and Thomas (2014) find that loan supply shocks explain most of the weakness in lending in the UK since the onset of the crisis and between a third and a half of the fall in GDP below its historic trend. Halvorsen and Jacobsen (2014) also find that lending shocks explain between 10 and 20 percent of output gap variance in Norway and the UK.…”

Section: Introductionmentioning

confidence: 88%

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Loan Supply Shocks in Macedonia: A Bayesian SVAR Approach with Sign Restrictions

Kabashi

Suleva

2016

CES

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This paper analyzes the effects of loan supply, as well as aggregate demand, aggregate supply and monetary policy shocks between 1998 and 2014 in Macedonia using a structural vector autoregression model with sign restrictions and Bayesian estimation. The main results indicate that loan supply shocks have no significant effect on loan volumes and lending rates, or on economic activity and prices. The effects of monetary policy on lending activity are fairly limited, although there is some evidence that it affects lending rates more than loan volumes. Monetary policy shocks have strong effects on inflation, while the central bank reacts strongly to adverse shocks hitting the economy. Baseline results are confirmed by several robustness checks. According to historical decomposition, the lending activity was supporting economic growth before and during the crisis, but its contribution became negative during the recovery and it was a drag on growth until the end of the period. Pre-crisis GDP growth is mostly explained by supportive monetary policy. However, the restrictive monetary policy during the crisis contributed to the fall of GDP, before becoming supportive again during the early stages of the recovery. Policy rates in recent years mostly reflect subdued lending activity and aggregate supply factors, which the central bank tries to counteract with a more accommodative policy. monetary policy, aggregate demand and aggregate supply shocks. It follows the recent literature on loan supply shocks, particularly regarding the empirical methodology. The main contribution of the paper is that it focuses on an important economic and policy issue in Macedonia, which has not been previously empirically investigated. By using Bayesian SVAR with sign restrictions, the paper avoids some of the drawbacks of classical econometric methods arising from the relatively short data series with structural and methodological breaks, which is common for transition countries. To the best of our knowledge, this is the first paper which tries to apply this technique to economic data on Macedonia.The paper starts with discussing data and methodology in Section 2. Section 3 presents baseline results. Section 4 provides robustness checks. The last section provides a conclusion.

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Section: Baseline Resultssupporting

confidence: 90%

Section: Introductionmentioning

confidence: 88%

Loan Supply Shocks in Macedonia: A Bayesian SVAR Approach with Sign Restrictions

Kabashi

Suleva

2016

CES

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“…This paper contributes to the standard credit supply literature (Gambetti and Musso, 2016;Barnett and Thomas, 2014;Eickmeier, Gambacorta, and Hofmann, 2014;Hristov, Hülsewig and Wollmerhäuser, 2012;and Busch, Scharnagl and Scheithauer, 2010, among others) by showing that fiscal policy shocks, rather than monetary policy shocks, can importantly explain credit supply. Likewise, this result relates to the extensive literature stemming from the seminal work of Bernanke and Gertler (1995) regarding the traditional bank lending channel.…”

mentioning

confidence: 72%

“…That is, monetary policy became a significant means of affecting banks' credit supply and consequently, aggregate demand and real activity in the economy. More recent empirical analyses point out to credit supply shocks as an important source of banking credit fluctuations (Gambetti andMusso, 2016, andBarnett andThomas, 2014, among others). For these works, banking decisions could become an exogenous source of booms and busts of credit that usually ends up affecting business cycle fluctuations.…”

Section: Introductionmentioning

confidence: 99%

Credit Supply in Venezuela: A Non-Conventional Bank Lending Channel?

Chirinos-Leañez¹,

Pagliacci²

2017

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work is licensed under a Creative Commons IGO 3.0 AttributionNonCommercial-NoDerivatives (CC-IGO BY-NC-ND 3.0 IGO) license (http://creativecommons.org/licenses/by-nc-nd/3.0/igo/ legalcode) and may be reproduced with attribution to the IDB and for any non-commercial purpose, as provided below. No derivative work is allowed.Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license.Following a peer review process, and with previous written consent by the Inter-American Development Bank (IDB), a revised version of this work may also be reproduced in any academic journal, including those indexed by the American Economic Association's EconLit, provided that the IDB is credited and that the author(s) receive no income from the publication. Therefore, the restriction to receive income from such publication shall only extend to the publication's author(s). With regard to such restriction, in case of any inconsistency between the Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives license and these statements, the latter shall prevail.Note that link provided above includes additional terms and conditions of the license.The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent.http://www.iadb.org 2017 1 Abstract * This paper evaluates whether fiscal and foreign exchange policy shocks can explain both credit and credit supply in Venezuela. Empirical evidence suggests that between 65 and 90 percent of credit growth is linked to the buildup of banks' deposits caused by the monetary effects of fiscal expansions. For these cases, since credit is provided at equal or reduced interest rates, credit supply takes place. Loan supply can occur either endogenously, when fiscal domestic spending increases with expansionary aggregate supply shocks, or exogenously, when fiscal policy shocks emerge. The role of exogenous fiscal shocks in accounting for credit supply is preponderant in the long run. This evidence suggests fiscal shocks represent a non-conventional bank lending channel. Because this exogenous fiscally-triggered credit supply does not significantly contribute to boosting real activity, its major cost might be associated with high credit volatility. JEL classifications: E5, E63, C32

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“…However, our findings, and those of Glocker and Towbin (2015), Sonoda and Sudo (2016), and Meeks (2017), 11 find little response of consumer prices to tighter credit policy, suggesting perhaps no clearly dominant channel. In a similar vein, Barnett and Thomas (2014), who study bank lending and economic activity in post-WWII Britain using a structural VAR, conclude that "credit supply shocks behave more like aggregate supply shocks than aggregate demand shocks", while Bassett, Chosak, Driscoll and Zakrajšek (2014) report that lending standards shocks in the US in the 1990s and 2000s did not have an economically or statistically significant impact on prices.…”

Section: The Effects Of Credit Controls Across Countriesmentioning

confidence: 97%

Monetary Versus Macroprudential Policies: Causal Impacts of Interest Rates and Credit Controls in the Era of the UK Radcliffe Report

Aikman

Bush

Taylor

2016

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We have entered a world of conjoined monetary and macroprudential policies. But can they function smoothly in tandem, and with what effects? Since this policy cocktail has not been seen for decades, the empirical evidence is almost non-existent. We can only fix this shortcoming in a historical laboratory. The Radcliffe Report (1959), notoriously skeptical about the efficacy of monetary policy, embodied views which led the UK to a three-decade experiment of using credit controls alongside conventional changes in the central bank interest rate. These non-price tools are similar to policies now being considered or used by macroprudential policymakers. We describe these tools, document how they were used by the authorities, and craft a new, largely hand-collected dataset to help estimate their effects. We develop a novel identification strategy, which we term Factor-Augmented Local Projection (FALP), to investigate the subtly different impacts of both monetary and macroprudential policies. Monetary policy acted on output and inflation broadly in line with consensus views today, but credit controls had markedly different effects and acted primarily to modulate bank lending.JEL codes: E50, G18, N14.

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Has Weak Lending and Activity in the UK been Driven by Credit Supply Shocks?

Cited by 30 publications

References 38 publications

Loan Supply Shocks in Macedonia: A Bayesian SVAR Approach with Sign Restrictions

Loan Supply Shocks in Macedonia: A Bayesian SVAR Approach with Sign Restrictions

Credit Supply in Venezuela: A Non-Conventional Bank Lending Channel?

Monetary Versus Macroprudential Policies: Causal Impacts of Interest Rates and Credit Controls in the Era of the UK Radcliffe Report

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