Does bank lending affect output? Evidence from the U.S. states |
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Authors: | John C Driscoll |
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Institution: | Board of Governors of the Federal Reserve System, Federal Reserve Board, 20th and Constitution Avenue NW, Mail stop 75, Washington, DC 20551, USA |
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Abstract: | This paper uses a panel of state-level data to test whether changes in bank loan supply affect output. Since the U.S. states are small open economies with fixed exchange rates, state-specific shocks to money demand are automatically accommodated, leading to changes in lending if banks rely on deposits as a source of funding. Using these shocks as an instrumental variable, I find that shocks to money demand have large and statistically significant effects on the supply of bank loans, but loans have small, often negative and statistically insignificant effects on output. |
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Keywords: | E32 E41 E51 |
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