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Why do bank loans react with a delay to shifts in interest rates? A bank capital explanation

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  • Jorge, José
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    Abstract

    We advance an explanation for the delay in the response of the volume of bank loans to innovations in monetary policy. Capital requirements may effectively tie the evolution of bank credit to the evolution of bank equity. By uncovering a new mechanism by which shifts in interest rates affect the profitability of the banking sector, and in turn its equity, we find that the resulting movements in the amount of aggregate loans are consistent with the regularities observed in the data.

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    Bibliographic Info

    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 26 (2009)
    Issue (Month): 5 (September)
    Pages: 799-806

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    Handle: RePEc:eee:ecmode:v:26:y:2009:i:5:p:799-806

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    Web page: http://www.elsevier.com/locate/inca/30411

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    Keywords: Banking Bank capital Monetary policy;

    References

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    Cited by:
    1. Drumond, Inês & Jorge, José, 2013. "Loan interest rates under risk-based capital requirements: The impact of banking market structure," Economic Modelling, Elsevier, vol. 32(C), pages 602-607.

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