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Bank liabilities and the monetary transmission mechanism

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  • Steven W. Sumner

    ()
    (Department of Economics, School of Business, University of San Diego)

  • Guy Yamashiro

    ()
    (California State University, Long Beach)

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    Abstract

    Using two sources of data on commercial bank liabilities we examine the behavior of various components of deposits following a monetary tightening (downturn) as well as a nonmonetary downturn equal in magnitude to the monetary downturn in order to better understand the portfolio behavior of commercial banks. We find that the increase in total deposits during a monetary tightening (when output is low and interest rates are high) is attributable to an increase in small time deposits and that large time deposits and demand deposits exhibit a decrease. This suggests that banks are able to, at least partially, offset the potentially adverse effects of a monetary tightening on their balance sheet by borrowing and raising additional small time deposits. Further, non-monetary downturns, when both interest rates and output are low, seem to have little effect on the liability position of banks.

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    File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I2-P132.pdf
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    Bibliographic Info

    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 31 (2011)
    Issue (Month): 2 ()
    Pages: 1413-1431

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    Handle: RePEc:ebl:ecbull:eb-11-00029

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    1. Eugenio Gaiotti & Alessandro Secchi, 2004. "Is there a cost channel of monetary policy transmission? An investigation into the pricing behavior of 2,000 firms," Macroeconomics, EconWPA 0412010, EconWPA.
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