Monetary policy and defaults in the united states

Michele Piffer*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)

Abstract

This paper uses a structural VAR model to study the effect of monetary policy on the delinquency rate of business loans and consumer credit. The VAR is identified using, jointly, several external instruments that reflect different approaches from the literature. Delinquency rates, defined as the rate of loans with overdue repayments relative to total loans, are found to decrease in response to an exogenous monetary expansion. The results are consistent with a general equilibrium effect formalized in the paper using a standard model of optimal defaults. According to both the theoretical model and the reported empirical evidence, the decrease in defaults is driven by the fact that monetary expansions increase aggregate demand and push up profits and income, thereby improving the repayment possibility of borrowers.

Original languageEnglish
Pages (from-to)327-358
Number of pages32
JournalInternational journal of central banking
Volume14
Issue number4
Publication statusPublished - Sept 2018

Fingerprint

Dive into the research topics of 'Monetary policy and defaults in the united states'. Together they form a unique fingerprint.

Cite this