Bank Lending Channel in Transmission of Monetary Policy in Japan, 2000¨C2012: Bayesian Estimation Analysis (original) (raw)
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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.
Applied Economics and Finance
This paper investigates empirically whether the bank lending channel of monetary policy existed in Japan from 2000 to 2012. We employ the sign restrictions VAR approach to deal with the identification problem. In particular, we focus on the differential effects of a quantitative easing monetary policy regardless of bank (City banks vs. Regional banks) and firm (all enterprises vs. small and medium-sized enterprises－SMEs) size. Our impulse response function analyses show that following a quantitative easing monetary policy shock, the lending of Regional banks increases more than that of City banks, and the bank lending rate of Regional banks declines in a larger magnitude. Moreover, the responses of output to reserve supply are larger in Regional banks than that in City banks. Our variance decomposition analyses show that a larger proportion of the forecast error variance in the bank lending of Regional banks relative to City banks, and a larger proportion of the forecast error varia...
Quantitative Easing and Bank Lending: Evidence from Japan
SSRN Electronic Journal, 2000
Prior to the recent financial crisis, one of the most prominent examples of unconventional monetary stimulus was Japan's "quantitative easing policy"(QEP). Most analysts agree that QEP did not succeed in stimulating aggregate demand sufficiently to overcome persistent deflation. However, it remains unclear whether QEP simply provided little stimulus, or whether its positive effects were overwhelmed by the contractionary forces in Japan's post-bubble economy. In the spirit of and Hosono , this paper uses bank-level data from 2000 to 2009 to examine the effectiveness in promoting bank lending of a key element of QEP, the Bank of Japan's injections of liquidity into the interbank market. We identify a robust, positive, and statistically significant effect of bank liquidity positions on lending, suggesting that the expansion of reserves associated with QEP likely boosted the flow of credit. However, the overall size of that boost was probably quite small. First, the estimated response of lending to liquidity positions in our regressions is small. Second, much of the effect of the BOJ's reserve injections on bank liquidity was offset as banks reduced their lending to each other. Finally, the effect of liquidity on lending appears to have held only during the initial years of QEP, when the banking system was at its weakest; by 2005, even before QEP was abandoned, the relationship between liquidity and lending had evaporated.
Bank Behaviour and the Channel of Monetary Policy in Japan, 1965-1999
The Japanese Economic Review, 2003
Using monthly data, this paper investigates whether there are differential effects of monetary policy across bank size and business size in Japan, to test the presence of the “bank lending channel” of monetary policy. It also considers that channel for the aggregate of banks. Prior to the end of 1984, support is found for the bank lending channel and also
The transmission mechanism of monetary policy in Japan: Evidence from banks' balance sheets
Journal of the Japanese and International Economies, 2006
Hosono, Kaoru-The transmission mechanism of monetary policy in Japan: Evidence from banks' balance sheets We examine how banks' responses to monetary policy vary according to their balance sheet using Japanese bank data from 1975 to 1999. We find that the effect of monetary policy on lending is stronger for banks that are smaller, less liquid, and more abundant with capital. The effects of bank balance sheet on monetary transmission are different by bank types, policy stances and borrowers' industries. Our results imply that a lending channel of monetary transmission exists, that the effect of expansionary monetary policy is attenuated if banks' capital is scarce, and that the effect of monetary policy on the allocation of funds depends on banks' balance sheets.
Bank Lending Channel of Monetary Policy Transmission: New Evidence From Indonesia
2021
Monetary policy can affect the economy through a variety of channels. Using quarterly secondary data from 2010: 1 to 2020: 2. This paper examines the bank lending channel to provide new evidence and explain the transmission mechanism in Indonesia. The estimation method used is a Vector Error Correction Model (VECM). The result of the VECM analysis shows that the Monetary Policy transmission mechanism through the bank lending channel still has a weak influence on the output. Therefore, from the demand side, it is necessary to seek new market shares for export purposes, also, to maintain existing ones to restore domestic corporate credit demand, and from the supply side, banks must provide easy access for MSMEs to obtain loans while still prioritizing the principle of prudence.
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.
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.
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.
Journal of the Japanese and International Economies, 2006
This paper reexamines the operating procedures of the Bank of Japan (BOJ) and identifies the monetary policy shock up to June 1995 by employing the structural VAR approach of Bernanke and Mihov (1998). This approach identifies exogenous components of monetary policy by setting up equilibrium models of the reserve market. In this way, it presents two equilibrium models, the Implicit Cost (IC) model and the Credit Rationing (CR) model, which are distinguished by opposing views about the BOJ's discount-window borrowing policy. The IC model has the feature that the BOJ endogenously accommodates the demand for discount-window borrowing by private banks. In contrast , the CR model has the feature that the BOJ exogenously controls the level of discount-window lending. This paper demonstrates that the CR model is superior to the IC model in describing the BOJ's operating procedures up to June 1995.