Cyclical lending standards: A structural analysis

Lending standards are a direct measure of credit conditions. We use the micro data merged from three separate sources to construct this and document that an uncertain macroeconomic outlook, rather than banks' balance sheet positions, was important reason majority banks tightened bank lending during Great Recession. Our extensive analysis disciplines how we introduce frictions in banking sector into model. The model estimation reveals exogenous shock supply drives cyclical accounts for significant portion fluctuations loans aggregate output.