October 2021 issue contents
Monetary Policy Transmission via Loan Contract Terms in the United States

Esteban Argudo
Vassar College


I study monetary transmission via changes in contract terms for C&I loans. I find that nonprice terms tighten and price terms relax following a surprise monetary contraction, consistent with a decrease in loan supply. Adjustments in nonprice terms (maximum line size, covenants, and collateral requirements) are responsible for a statistically significant decrease in GDP of about 0.3 percentage point following a monetary surprise. I also document a lag between the response in bond market credit indicators and the loan contract terms. I interpret this finding as evidence of an important interaction between these two markets.

JEL Code: E43, E44, E51, E52.

Full article (PDF, 31 pages, 3,710 kb)
Online appendix (PDF, 22 pages, 5,917 kb)