A Semi-parametric Time Trend Varying Coefficients Model: 

With An Application to Evaluate Credit Rationing in U.S. Credit

Qi Gao

Jingping Gu


Paula Hernandez-Verme

In this paper, we propose a new semi-parametric 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 asthe underlying state variable, we ?nd that credit is not rationed for levels of inaction 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.

Key Words: Non-stationarity; Semi-parametric smooth coefficients; Nonlinearity; Credit rationing.
JEL Classification Numbers: C14, C22, E44.