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A bank lending channel or a credit supply shock?

Milcheva, S. (2013) A bank lending channel or a credit supply shock? Journal of Macroeconomics, 37. pp. 314-332. ISSN 0164-0704

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To link to this item DOI: 10.1016/j.jmacro.2013.03.004


Shifts in credit supply could have a bearing on house prices e.g. through financial innovations and changes in regulation independently of the existence of a bank lending channel of monetary policy. This paper assesses the responses of US house prices to an exogenous credit supply shock and compares them with the effects from variations in credit supply associated with a bank lending channel. The contribution of the study is twofold. First, innovations in credit supply are identified using a mortgage mix variable, thereby accounting for the market-based financial intermediaries. As a robustness check a survey variable of bank lending standards for mortgage loans is also used. Second, the policy-induced credit supply effect on house prices is disentangled and compared with the effect from an exogenous credit supply shock. It is shown that in the first 3 years credit supply shocks affect house prices exogenously rather than through the bank lending channel. Monetary policy has still a large impact on house prices, even when the bank lending channel is ‘turned off’.

Item Type:Article
Divisions:Henley Business School > Real Estate and Planning
ID Code:32700
Uncontrolled Keywords:Bank lending channel; Monetary policy transmission mechanism; Credit supply; House prices; Mortgage mix; Lending standards

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