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The Role of Bank Lending in Market-Based and Bank-Based Financial Systems

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Author Info
Sylvia Kaufmann () (Oesterreichische Nationalbank)
Maria Valderrama () (Oesterreichische Nationalbank)

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Abstract

Theoretical models of the role of credit in business cycles and of the transmission mechanism have largely concluded that, given capital market imperfections, credit conditions may amplify and propagate the effect of shocks in the economy. This paper compares the behavior of loans to households and loans to nonfinancial corporations in Austria, Germany, the Netherlands and the United Kingdom. Analyzing credit aggregates in these countries in a framework accounting for diverging economic environments allows for an assessment of how the amplifying and asymmetric effects of credit aggregates differ between market-based and bank-based financial systems. The results show that the state of the economy impacts the way in which shocks are propagated through credit markets. The effects of shocks are smoothed over time in bank-based financial systems irrespective of the economic environment and in market-based systems only during periods of subdued economic growth or tight liquidity conditions. During economic recoveries we observe an amplifying effect in market-based systems. Thus, the deceleration in credit growth in the above-mentioned countries between 1999 and 2003 was mainly demandside rather than supply-side driven, given the overall slowdown of the economy.

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Publisher Info
Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Monetary Policy and the Economy.

Volume (Year): (2004)
Issue (Month): 2 (July)
Pages: 88-97
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Handle: RePEc:onb:oenbmp:y:2004:i:2:b:6

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Related research
Keywords: Bank Lending;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," NBER Working Papers 5146, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March. [Downloadable!] (restricted)
  3. 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.
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  4. Boot, Arnoud W. A., 2000. "Relationship Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 7-25, January. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kim-Leng Goh & Sook-Lu Yong, 2007. "Bank lending and monetary policy: the effects of structural shift in interest rates," Economics Bulletin, Economics Bulletin, vol. 5(5), pages 1-14. [Downloadable!]
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