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The Bank Lending Channel of Monetary Policy in Nepal: Evidence from Bank Level Data

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  • Birendra Bahadur Budha

    ()
    (Nepal Rastra Bank)

Abstract

This paper examines the bank lending channel of monetary policy transmission in Nepal using data during 2003-2012. Using the dynamic Arellano-Bond GMM estimation with annual data of 25 Nepalese commercial banks, this study tries to estimate the loan supply responses of Nepalese commercial banks, depending on their balance sheet characteristics. The main results suggest that banks play a role in Nepal's monetary transmission mechanism. Empirical result shows that the bank lending decreases after a monetary tightening. Bank size is found to have significant impact on loan supply in Nepal. Similarly, liquidity in the case of private sector banks is also playing a significant role in bank lending in response to monetary policy changes. But, capitalization is found to have no significant impact on bank lending. The bank loan supply is also found to be significantly affected by gross domestic product.

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Bibliographic Info

Article provided by Nepal Rastra Bank, Research Department in its journal NRB Economic Review.

Volume (Year): 25 (2013)
Issue (Month): 2 (October)
Pages: 43-65

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Handle: RePEc:nrb:journl:v:25:y:2013:i:2:p:43-65

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Web page: http://www.nrb.org.np/ecorev/
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Keywords: Bank Lending Channel; Bank Loans; Monetary Policy; Nepal;

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  1. Farinha, Luísa & Robalo Marques, Carlos, 2001. "The bank lending channel of monetary policy: identification and estimation using Portuguese micro bank data," Working Paper Series 0102, European Central Bank.
  2. L. de Haan, 2001. "The Credit Channel in the Netherlands: Evidence from Bank Balance Sheets," WO Research Memoranda (discontinued) 674, Netherlands Central Bank, Research Department.
  3. Juurikkala, Tuuli & Solanko, Laura & Karas, Alexei, 2009. "The role of banks in monetary policy transmission: Empirical evidence from Russia," BOFIT Discussion Papers 8/2009, Bank of Finland, Institute for Economies in Transition.
  4. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  5. Rania Al Mashat & Andreas Billmeier, 2008. "The Monetary Transmission Mechanism in Egypt," Working Papers 411, Economic Research Forum, revised Jun 2008.
  6. Joe Peek & Eric S. Rosengren, 1995. "Is bank lending important for the transmission of monetary policy: an overview," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 39, pages 1-14.
  7. Carlo A. Favero & Francesco Giavazzi & Luca Flabbi, 1999. "The Transmission Mechanism of Monetary Policy in Europe: Evidence from Banks' Balance Sheets," NBER Working Papers 7231, National Bureau of Economic Research, Inc.
  8. Adel Boughrara & Samir Ghazouani, 2010. "Is There A Bank Lending Channel Of Monetary Policy In Selected Mena Countries? A Comparative Analysis," Middle East Development Journal (MEDJ), World Scientific Publishing Co. Pte. Ltd., vol. 2(02), pages 251-282.
  9. Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
  10. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
  11. 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, vol. 90(3), pages 407-428, June.
  12. Joe Peek & Eric S. Rosengren, 1995. "Bank lending and the transmission of monetary policy," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 39, pages 47-79.
  13. Koray Alper & Timur Hulagu & Gursu Keles, 2012. "An Empirical Study on Liquidity and Bank Lending," Working Papers 1204, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
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