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Title: Distributional Consequences of Monetary Policy Across Races: Evidence from the U.S. Credit Register
Citation Type: Working Paper
Publication Year: 2022
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Abstract: We examine the consequences of monetary policy on racial disparities, focusing on therole of bank lending to firms through collateral and selection channels. Leveragingcomprehensive loan-level data from the U.S. credit register (Y-14Q) of the FederalReserve, we show that firms in Black communities obtain business loans that aremore expensive and have a shorter maturity. These firms are also more likely toexperience adverse credit supply shocks, controlling for firm risk and investmentopportunities, as well as geographic and cultural covariates. We also study theeffects of monetary policy across racial groups and document that, following amonetary policy tightening, banks extend loans to firms in Black communitiesat disproportionately higher interest rates. Furthermore, banks pass a monetarytightening through to loan rates for borrowers who have no collateral, have priordefaults, and have a shorter banking relationship, but even more to loan ratesfor firms in Black communities. Our findings suggest that monetary policy has distributional consequences in the form of tightened selectivity for Black minorities through lending conditions. Our analysis calls for place-based policies that target certain minority groups.
Url: https://www.hbs.edu/ris/Publication Files/22-068_80a9b540-7ceb-4af6-b0db-42b429504723.pdf
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Authors: Alfaro, Laura; Faia, Ester; Minoiu, Camelia
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Publication Number: 22-068
Institution: Harvard Business School
Pages: 1-57
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Data Collections: IPUMS NHGIS
Topics: Population Mobility and Spatial Demography, Poverty and Welfare, Race and Ethnicity
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