Celtics vs Timberwolves

Some time ago, three superstars of the economics profession at the Minnesota FED, Chari, Christiano and Kehoe (CCK), claimed in a controversial paper that all the talk about the occurrence of a credit crunch in the US was misleading. With the help of available data, they "debunked" the following myths about the way the financial crisis is hitting the real economy:

1. Bank lending to nonfinancial corporations and individuals has declined sharply.
2. Interbank lending is essentially nonexistent.
3. Commercial paper issuance by nonfinancial corporations has declined sharply and rates have risen to unprecedented levels.
4. Banks play a large role in channeling funds from savers to borrowers.

In a response paper, four Boston FED economists, Cohen-Cole, Duygan-Bump, Fillat, Montoriol-Garriga disprove CCK' s conclusions, claiming that one cannot assess those popular claims by simply looking at aggregate data. If one looks at the composition of financial aggregates one observes evidence of:

1. Decrease in "new lending": banks are in fact making heavy use of existing lines of credit, but are not renewing them at maturity or they are sometimes closing existing ones.
2. Interbank lending is indeed working unusually: large banks have in fact sharply increased their cash assets (cash hoarding) which entails high opportunity costs, indicating disfunctions;
3. Big, high quality (AA) non-financials corporations have not been hit by the crisis, but signs of strains are evident for lower quality non-financials corporations (A2/P2) who find it harder to obtain commercial paper funding (another piece of evidence of flight to quality).
4. Banks are still important: when problems arise in the commercial paper segment, banks have to fulfill credit expectations; furthermore, they are still important for ordinary consumers.
   

The question is then, will the banks be able and willing to provide these fundings? It seems like they are not..


Anyway, the conciliatory conclusions are for both papers that, indeed, we need more and better data to say anything meaningful...and the more general lesson for everybody is: don't draw too strong conclusions from aggregate data!