This paper investigates the portfolio behavior of bank loans following a monetary tightening. We find that real estate and consumer loans sharply decrease, while commercial and industrial (C&I) loans increase. We compare this behavior with the responses following non-monetary shocks, which also reduce output but keep interest rates roughly unchanged. During such a "non-monetary" downturn, C&I loans sharply decrease, while real estate and consumer loans show no substantial response. These responses, together with the responses of relevant lending rates, are hard to reconcile with a decline in the supply of C&I bank loans during a monetary downturn as stressed by the bank-lending channel. Instead, we give several arguments why the supply of C&I loans may actually increase after a monetary contraction.JEL codes: E40

This paper examines the effectiveness of public credit guarantee programs in not only increasing the availability of loans to small and medium enterprises (SMEs), but in also improving the expost performance of borrowing firms. Using a unique panel data set, we identify the effects of a massive credit guarantee program implemented by the Japanese government from 1998-2001. While we do find that the availability of loans increased for program participants, when loans were provided by undercapitalized banks the increased liquidity persisted for only a few years. Further, the ex-post performance of program participants, with the exception of firms with sizable net worth, deteriorated relative to their non-participating counterparts. JEL Classification Code: G28; G38; H81

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The research program of the Center for Economic Studies (CES) produces a wide range of theoretical and empirical economic analyses that serve to improve the statistical programs of the U.S. Bureau of the Census. Many of these analyses take the form of CES research papers. The papers are intended to make the results of CES research available to economists and other interested parties in order to encourage discussion and obtain suggestions for revision before publication. The papers are unofficial and have not undergone the review accorded official Census Bureau publications.The opinions and conclusions expressed in the papers are those of the authors and do not necessarily represent those of the U.S. Bureau of the Census. Republication in whole or part must be cleared with the authors.

We empirically examine whether greater firm diversity results in the inefficient allocation of capital. Using both COMPUSTAT and the Annual Capital Expenditure Survey (ACES) we find firm diversity to be negatively related to the efficiency of investment. However once we distinguish between capital expenditure for structures and equipment, we find that while firms do inefficiently allocate capital for equipment, they efficiently allocate capital for structures. These results suggest that when the decision will have long-lasting repercussions, headquarters will, more often than not, make the correct choice.JEL Classification: D2, G3, L2