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Federal Reserve Bank of Boston
Working Papers
Identifying the macroeconomic effect of loan supply shocks
Joe Peek
Eric S. Rosengren
Geoffrey M. B. Tootell
Abstract

Evidence of an operative credit channel has been inconclusive. The inability to clearly distinguish the effects of shocks to loan supply from those to loan demand has made it difficult to quantify the importance of this transmission mechanism to the economy. This paper provides an innovative approach to identifying loan supply shocks that enables us to show that such disturbances have had economically important effects on the U.S. economy over the past two decades. We provide three different pieces of evidence that confirm that loan supply shocks have been successfully isolated from shifts in loan demand: Our measure is particularly important for explaining inventory movements, the component of GDP most likely to be sensitive to shifts in bank loan supply; the effect is present even during periods of strong loan demand; and the effect does not dissipate quickly, as would be the case for demand shocks.


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Joe Peek & Eric S. Rosengren & Geoffrey M. B. Tootell, Identifying the macroeconomic effect of loan supply shocks, Federal Reserve Bank of Boston, Working Papers 00-2, 2000.
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Keywords: Monetary policy
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