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Loan Supply In Germany During The Financial Crisis

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Executive Summary

Distinguishing pure supply effects from other determinants of price and quantity in the market for loans is a notoriously difficult problem. Using German data, the authors employ Bayesian vector autoregressive models with sign restrictions on the impulse response functions in order to enquire the role of loan supply and monetary policy shocks for the dynamics of loans to non-financial corporations. For the three quarters following the Lehman collapse, they find very strong negative loan supply shocks, while monetary policy was essentially neutral. Nevertheless, the historical decomposition shows a cumulated negative impact of loan supply shocks and monetary policy shocks on loans to non-financial corporations, due to the lagged effects of past loan supply and monetary policy shocks.

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