Bank Lending Standards, Loan Demand, and the Macroeconomy: Evidence from the Korean Bank Loan Officer Survey

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A typical sign-restriction approach imposes restrictions on the bank lending rate (price) and the volume of loans (quantity) to identify a loan supply shock under the implicit assumption that the observed interest rate equates supply and demand for loans. Using the bank loan officer surveys from 12 countries, we document a novel cyclical pattern found in bank lending standards and loan demand, which differs between market-based and bank-based economies. In particular, the lending rate does not necessarily reflect the credit market conditions in bank-based economies, suggesting the presence of excess demand for credit. Using the Korean economy as an example, we demonstrate the failure of identification of loan supply shocks when relying on the lending rate and propose novel identifying schemes by exploiting the information from the bank loan officer survey. Our findings suggest that disentangling the supply and demand factors of credit shocks is crucial in understanding their macroeconomic effects.

Original languageEnglish
Pages (from-to)1-45
Number of pages45
JournalInternational Journal of Central Banking
Publication statusPublished - 2021 Dec

Bibliographical note

Funding Information:
∗The comments and suggestions by the editor (Linda Goldberg) and two anonymous referees improved the paper significantly. I am also thankful to Hie Joo Ahn, Martin Bijsterbosch, Woon Gyu Choi, Hiro Ishise, Hyunjoon Lim, Chris Mitchell, Junghwan Mok, Matthias Paustian, Etsuro Shioji, Arsenios Skaper-das, Nisha Mary Thomas (discussant), Takayuki Tsuruga, Ken West, Ling Zhu, and the seminar participants at the Bank of Korea, the Bank of Korea’s Washington Office, UCLA, the 2017 conference of the Georgetown Center for Economic Research, the INFINITI Conference on International Finance 2018 ASIA-PACIFIC in Sydney, and the Institution of Social and Economic Research of Osaka University for their helpful comments. I have particularly benefited from consulting with the Banking System Analysis Team at the Bank of Korea on the Korean bank loan officer survey. This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2020S1A5A8045054). Junhyeok Shin provided excellent research assistance. All remaining errors are mine. Author contact: School of Economics, Yonsei University, 50 Yonsei-ro, Seodaemun-gu, Seoul 03722, South Korea. E-mail:

Publisher Copyright:
© 2021, European Central Bank. All rights reserved.

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics


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