Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/185486
Authors: 
Niepmann, Friederike
Schmidt-Eisenlohr, Tim
Year of Publication: 
2018
Series/Report no.: 
CESifo Working Paper No. 7288
Abstract: 
This paper documents that an appreciation of the U.S. dollar is associated with a reduction in the supply of commercial and industrial loans by U.S. banks. An increase in the broad dollar index by 2.5 points (one standard deviation) reduces U.S. banks’ corporate loan originations by 10 percent. This decline is driven by a reduction in the demand for loans on the secondary market where prices fall and liquidity worsens when the dollar appreciates, with stronger effects for riskier loans. Today, the main buyers of U.S. corporate loans—and, hence, suppliers of funding for these loans—are institutional investors, in particular mutual funds, which experience outflows when the dollar appreciates. A shift of traditional financial intermediation to these relatively unregulated entities, which are more sensitive to global developments, has led to the emergence of this new channel through which the dollar affects the U.S. economy, which we term the secondary market channel.
Subjects: 
leveraged loan market
commercial and industrial loans
U.S. dollar exchange rate
credit standards
institutional investors
JEL: 
E44
F31
G15
G21
G23
Document Type: 
Working Paper

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