The Bank Lending Channel: A FAVAR Analysis (original) (raw)
Related papers
Bank Lending and Monetary Policy: Evidence on a Credit Channel
W hile there is widespread agreement that banks play a key part in the transmission of monetary policy actions to the economy, there is considerable controversy over the precise role that banks play. The focus of this debate is whether bank lending plays a special part in the monetary transmission mechanism. If a special lending or credit channel exists, changes in the willingness and ability of banks to extend credit may have implications for aggregate economic activity. Moreover, ongoing changes in the role banks play in financial markets may affect this credit channel and so alter the monetary transmission mechanism.
Quantitative Finance and Economics, 2018
This study examines comprehensively the bank-lending channel of monetary policy for Zambia using a bank-level panel data covering the period Q1 2005 to Q4 2016. Specifically, the study investigates the effects of monetary policy changes on loan supply by commercial as well as the effect of bank-specific factors on response of loan supply to monetary policy shocks. In addition, the study investigates whether the level of bank competition does affect the bank-lending channel. Using a dynamic panel data approaches developed by Arellano-Bond (1991), the results indicate that a bank-lending channel exists in Zambia. In particular, the results show that is loan supply is negatively correlated with policy rate implying that following monetary policy tightening loan supply shrinks. Further, the results indicate that size, liquidity and bank-competiveness have effects on credit supply while capitalization has no effect. Specifically, the results show that bank size has negative effect on credit supply while liquidity and market power are found to enhance credit supply. Most importantly, the results showed that bank-specific factors and bankcompetiveness is responsible for the asymmetrical response of banks to monetary policy. Specifically, the results showed that larger banks, banks with more market power, well-capitalized banks and liquid banks respond less to monetary policy tightening and vice-versa.
The Bank Lending Channel Reconsidered
SSRN Electronic Journal, 2000
It has been widely accepted that constraints on the wholesale funding of bank balance sheets amplify the transmission of monetary policy through what is called the 'bank lending channel'. We show that the effect of such bank balance sheet constraints on monetary transmission is in fact theoretically ambiguous, with the prior expectation, based on standard theoretical models of household and corporate portfolios, that the bank lending channel attenuates monetary policy transmission.
Bank Lending Channel Effectiveness – Potential Lessons For Monetary Policy
Journal of Banking and Financial Economics
The article supplements the research on the effectiveness of monetary policy transmission – especially through the bank lending channel. The current study focuses on assessing the transmission of monetary impulses through commercial and cooperative banks as well as through individual loan portfolios, while distinguishing between the fact that they were granted by commercial and cooperative banks. How a change in the central bank’s interest rates may determine a change in the volume of loans in the economy remains the core question of the research.
On the firm-level implications of the Bank Lending Channel of monetary policy
Journal of Economic Dynamics & Control, 2010
Standard models of the Bank Lending Channel are unable to yield predictions on the differential impact of monetary policy shocks over heterogeneous borrowers. This inability has made researchers doubt about the role played by bank credit as a transmission mechanism of monetary policy. Moreover, it has made them reject those models in favor of the Balance Sheet Channel as a transmission mechanism. In this paper we show that an “augmented” version of the Bank Lending Channel that allows for firm heterogeneity (but without any role for firms’ balance sheets) reproduces well the dynamics of firm-level data. Our contribution is to show that it is not clear that the Bank Lending Channel should be rejected in favor of alternative theories on the basis of its inability to reproduce firm-level data. Thus, there is additional room for econometric tests that can provide support to the Bank Lending Channel.
Monetary Expansion and the Banking Lending Channel
This paper examines the bank lending channel, which considers how monetary authority actions affect the variation of loans. We focus on the BRICS (Brazil, Russia, India, China and South Africa) totalizing 1254 banks from five countries in the period 2000–2012 (totaliz-ing 13 years). The empirical results show that the effect of money supply growth on the growth of loans is non-linear and inverted U-shaped. In this context, our results show empirical evidence expansionary monetary policies do not increase the propensity of economic agents to systematically take greater risks on the market. After a certain level of money stock, increases in the money supply do not lead to increased negotiated credit.
Bank Lending (Credit) Channel of Monetary Transmission Mechanism
Journal of Business and Social Review in Emerging Economies, 2018
The significance of channel of bank lending for the process of transmission of monetary policy is examined employing the model of ARDL (Auto-regressive-distributed lag). This recently established bound test is used in order to determine the description of this model. The data that has been used for this research is based on secondary data of 7 years. The results appear constant with the hypothesis that providing by banks with comparatively frail capital responds great, the modification in the stance of monetary policy than providing by improved capitalized banks.
Is there a bank lending channel for monetary policy?
Using data for the U.S. manufacturing sector, we investigate the existence of a credit channel for monetary policy that operates through bank lending. Our test is based on the behavior of the mix of bank and nonbank debt after a shift in monetary policy. We allow for a differential response to monetary policy of the debt mix for small firms and large firms, and we account for movements in all major types of nonbank debt (including trade credit and long-term debt). In contrast to earlier work, we find no support for a bank lending channel.
Applied Economics and Finance
This paper investigates empirically whether a bank lending channel of monetary policy existed in Japan from 2000 to 2012. We extend Bernanke and Blinder's model and estimate it with the Bayesian method to deal with the identification problem. In particular, we focus on the differential effects of quantitative easing monetary policy regardless of bank size (City banks vs. Regional banks) and firm size (all enterprises vs. small and medium-sized enterprises). We find that the semi-elasticities of loan supply with respect to bank lending rate are larger than those of loan demand, implying a need for larger decline in bank lending rate to stimulate loan demand following an increase in loan supply. We also find that the semi-elasticities of both loan demand and loan supply are almost the same with respect to bank lending rate regardless of bank and enterprise size. Bayesian impulse response function analyses show an increase in bank lending but a decline in spread following quantitative easing monetary policy shock, which is evidence of the bank lending channel. Variance decomposition analyses show that while a large proportion of forecast error variance in bank loans is explained by monetary policy shock, a large proportion of forecast error variance in spread is explained by loan supply shocks. These results also comprise evidence of bank lending channel. However, we find no evidence that loans of smaller banks and loans to smaller firms are more sensitive to monetary policy.