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The Role Of Uncertainty In The Transmission Of Monetary Policy Effects On Bank Lending

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  • CHRISTOPHER BAUM
  • MUSTAFA CAGLAYAN
  • NESLIHAN OZKAN

Abstract

In this paper we re-examine commercial banks' lending behavior taking into account changes in the stance of monetary policy in conjunction with changes in financial sector uncertainty. Using a very large data set covering all banks in the US between 1986-2000, we show that financial uncertainty has an important and significant role in the monetary policy transmission mechanism that varies across bank categories and the strength of banks' balance sheets. We find support for the existence of a bank lending channel among US banks.

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Bibliographic Info

Article provided by University of Manchester in its journal The Manchester School.

Volume (Year): 81 (2013)
Issue (Month): 2 (03)
Pages: 202-225

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Handle: RePEc:bla:manchs:v:81:y:2013:i:2:p:202-225

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References

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  1. Joe Peek & Eric S. Rosengren, 1995. "Is bank lending important for the transmission of monetary policy? An overview," New England Economic Review, Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, issue Nov, pages 3-11.
  2. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(4), pages 27-48, Fall.
  3. Jeremy C. Stein, 1998. "An Adverse-Selection Model of Bank Asset and Liability Management with Implications for the Transmission of Monetary Policy," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 466-486, Autumn.
  4. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February.
  5. Christopher F. Baum & Mustafa Caglayan & Neslihan Ozkan, 2000. "Nonlinear Effects of Exchange Rate Volatility on the Volume of Bilateral Exports," Boston College Working Papers in Economics, Boston College Department of Economics 488, Boston College Department of Economics, revised 30 Jul 2002.
  6. Gertler, Mark & Gilchrist, Simon, 1994. "Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(2), pages 309-40, May.
  7. Ben S. Bernanke & Ilian Mihov, 1995. "Measuring Monetary Policy," NBER Working Papers 5145, National Bureau of Economic Research, Inc.
  8. Merton, Robert C., 1980. "On estimating the expected return on the market : An exploratory investigation," Journal of Financial Economics, Elsevier, Elsevier, vol. 8(4), pages 323-361, December.
  9. Anil K. Kashyap & Jeremy C. Stein & David W. Wilcox, 1991. "Monetary policy and credit conditions: evidence from the composition of external finance," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 154, Board of Governors of the Federal Reserve System (U.S.).
  10. Kashyap, Anil K & Stein, Jeremy C & Wilcox, David W, 1996. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance: Reply," American Economic Review, American Economic Association, American Economic Association, vol. 86(1), pages 310-14, March.
  11. Christopher F. Baum & Mustafa Caglayan & Neslihan Ozkan, 2002. "The Impact of Macroeconomic Uncertainty on Bank Lending Behavior," Computing in Economics and Finance 2002, Society for Computational Economics 94, Society for Computational Economics.
  12. Ben S. Bernanke & Alan S. Blinder, 1989. "The federal funds rate and the channels of monetary transmission," Working Papers 89-10, Federal Reserve Bank of Philadelphia.
  13. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, American Economic Association, vol. 90(3), pages 407-428, June.
  14. Anil K Kashyap & Jeremy C. Stein, 1994. "The Impact of Monetary Policy on Bank Balance Sheets," NBER Working Papers 4821, National Bureau of Economic Research, Inc.
  15. Worms, Andreas, 2001. "The reaction of bank lending to monetary policy measures in Germany," Working Paper Series, European Central Bank 0096, European Central Bank.
  16. Nilsen, Jeffrey H, 2002. "Trade Credit and the Bank Lending Channel," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 34(1), pages 226-53, February.
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Cited by:
  1. Christopher F Baum & Mustafa Caglayan & Neslihan Ozkan, 2004. "The second moments matter: The response of bank lending behavior to macroeconomic uncertainty," Computing in Economics and Finance 2004, Society for Computational Economics 172, Society for Computational Economics.
  2. Fabian Valencia, 2013. "Aggregate Uncertainty and the Supply of Credit," IMF Working Papers 13/241, International Monetary Fund.
  3. Burkhard Raunig & Johann Scharler & Friedrich Sindermann, 2014. "Do Banks Lend Less in Uncertain Times?," Working Papers, Faculty of Economics and Statistics, University of Innsbruck 2014-06, Faculty of Economics and Statistics, University of Innsbruck.

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