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.