The second moments matter: The response of bank lending behavior to macroeconomic uncertainty

Christopher Baum, Mustafa Caglayan () and Neslihan Ozkan

No 172, Computing in Economics and Finance 2004 from Society for Computational Economics

Abstract: In this paper we investigate whether macroeconomic uncertainty could distort allocation of loanable funds. To provide a road--map for our empirical investigation, we present a simple framework which demonstrates that an increase in macroeconomic uncertainty will lead to more homogeneous behavior among banks. We test this prediction on a comprehensive U.S. commercial bank data set, and find that as macroeconomic uncertainty increases the cross--sectional dispersion of banks' loan--to--asset ratios narrows, supporting our basic hypothesis. Our results are broadly similar across total loans and three major categories of bank loans, and robust to the inclusion of macroeconomic factors

Keywords: bank lending; financial sector uncertainty; lending channel (search for similar items in EconPapers)
JEL-codes: E44 E51 G32 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-mon
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Citations: View citations in EconPapers (18)

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Working Paper: The second moments matter: The response of bank lending behaviour to macroeconomic uncertainty (2005)
Working Paper: The second moments matter: The response of bank lending behavior to macroeconomic uncertainty (2004)
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