A Semiparametric Time Trend Varying Coefficients Model: With An Application to Evaluate Credit Rationing in U.S. Credit Market

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Qi Gao ; Jingping Gu ; Paula Hernandez-Verme (2012)
  • Journal: Annals of Economics and Finance (vol: 13, pp: 189-210)
In this paper, we propose a new semiparametric varying coefficient model which extends the existing semi-parametric varying coefficient models to allow for a time trend regressor with smooth coefficient function. We propose to use the local linear method to estimate the coefficient functions and we provide the asymptotic theory to describe the asymptotic distribution of the local linear estimator. We present an application to evaluate credit rationing in the U.S. credit market. Using U.S. monthly data (1952.1-2008.1) and using inflation as the underlying state variable, we find that credit is not rationed for levels of inflation that are either very low or very high; and for the remaining values of inflation, we find that credit is rationed and the Mundell-Tobin effect holds.
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