The Effect of Monetary Policy on Bank Lending and Aggregate Output: Asymmetries from Nonlinearities in the Lending Channel
AbstractThis paper examines the asymmetric effects of monetary policy on output and the role of bank-lending behavior. We investigate whether contractionary and expansionary policies have asymmetric impacts on bank loans, and whether there are further differences in the response of small banks and big banks to policy actions. We also investigate the link between changes in bank lending and aggregate economic activity. Our goal is to simultaneously capture the existence of the lending view of the monetary transmission mechanism, the strong relationship between loan growth and output growth, and the asymmetric effect of monetary policy on output. We use a nonlinear vector autoregressive approach to carry out our analysis. Our results show that asymmetry in the response of bank lending to monetary policy is not a substantially contributing factor in explaining the different responses of output to contractionary and expansionary policy.
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Bibliographic InfoArticle provided by Society for AEF in its journal Annals of Economics and Finance.
Volume (Year): 6 (2005)
Issue (Month): 1 (May)
Bank Lending; Monetary Transmission Mechanism; Asymmetries; Smooth Transition Regression; Cointegration;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
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