Introduction

In the same line of research as in other empirical work (see de Bondt, 1999, Kashyap and Stein, 1995 and the contributions in the present volume), the evidence for cross-sectional differences in Austrian banks' lending reaction is investigated here with individual bank balance sheet data. Additionally, I try to capture a potential asymmetric response of bank lending over time as recent models of credit cycles suggest it. Kiyotaki and Moore (1997a, 1997b), for example, develop a model of the credit market that amplifies initial liquidity shocks to the system and propagates them to the real economy. Moreover, during a recession, the probability of debt repayment default increases and the response of the economy is amplified.

So far, the bank-lending channel in Austria has not been thoroughly investigated. There is one other study (Frühwirth-Schnatter and Kaufmann, 2003), that uses a different approach but the same data set as in this chapter. Therein, similarly to the present study, the authors find only weak evidence for cross-sectional differences in bank-lending reaction and a significant time-varying effect of interest rate changes. Evidence on the balance sheet channel, which forms the other part of the credit channel, is rather strong, however. Wesche (2000) and in particular Valderrama (chapter 13 in this volume) find that balance sheet effects are amplified for financially constrained firms.