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The role of uncertainty in the transmission of monetary policy effects on bank lending

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Author Info
Christopher F. Baum () (Boston College, DIW Berlin)
Mustafa Caglayan (University of Sheffield)
Neslihan Ozkan () (University of Bristol)

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Abstract

In this paper we re-examine commercial banks' lending behavior taking into account changes in the stance of monetary policy in conjunction with changes in financial sector uncertainty. Using a very large data set covering all banks in the US between 1986-2000, we show that financial uncertainty has an important and significant role in the monetary policy transmission mechanism that varies across bank categories and the strength of banks' balance sheets. We find support for the existence of a bank lending channel among US banks.

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Publisher Info
Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 561.

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Length: 29 pages
Date of creation: 06 Jun 2003
Date of revision: 28 Apr 2008
Handle: RePEc:boc:bocoec:561

Note: Previously circulated as "Re-examining the Transmission of Monetary Policy: What More Do a Million Observations Have to Say"
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Related research
Keywords: banks; lending; monetary policy; financial uncertainty; liquidity constraints;

Find related papers by JEL classification:
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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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 & Ilian Mihov, 1998. "Measuring Monetary Policy," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 869-902, August. [Downloadable!] (restricted)
    Other versions:
  2. Merton, Robert C., 1980. "On estimating the expected return on the market : An exploratory investigation," Journal of Financial Economics, Elsevier, vol. 8(4), pages 323-361, December. [Downloadable!] (restricted)
    Other versions:
  3. 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, pages 1-14. [Downloadable!]
    Other versions:
  4. Anil K. Kashyap & Jeremy C. Stein, 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. [Downloadable!] (restricted)
  5. Nilsen, Jeffrey H, 2002. "Trade Credit and the Bank Lending Channel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 226-53, February.
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  6. Jeremy C. Stein, 1995. "An Adverse Selection Model of Bank Asset and Liability Management with Implications for the Transmission of Monetary Policy," NBER Working Papers 5217, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Mark Gertler & Simon Gilchrist, 1991. "Monetary Policy, Business Cycles and the Behavior of Small Manufacturing Firms," NBER Working Papers 3892, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. Christopher F. Baum & Mustafa Caglayan & Neslihan Ozkan, 2004. "Nonlinear effects of exchange rate volatility on the volume of bilateral exports," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(1), pages 1-23. [Downloadable!]
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  9. Christopher F. Baum & Mustafa Caglayan & Neslihan Ozkan, 2002. "The Impact of Macroeconomic Uncertainty on Bank Lending Behavior," Computing in Economics and Finance 2002 94, Society for Computational Economics. [Downloadable!]
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  10. Bernanke, Ben & Gertler, Mark, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Working Papers 95-15, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
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  11. Kashyap, Anil K & Stein, Jeremy C & Wilcox, David W, 1993. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance," American Economic Review, American Economic Association, vol. 83(1), pages 78-98, March. [Downloadable!] (restricted)
    Other versions:
  12. Kashyap, Anil K & Stein, Jeremy C & Wilcox, David W, 1996. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance: Reply," American Economic Review, American Economic Association, vol. 86(1), pages 310-14, March. [Downloadable!] (restricted)
  13. Andreas Worms, 2001. "The reaction of bank lending to monetary policy measures in Germany," Working Paper Series 096, European Central Bank. [Downloadable!]
  14. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February. [Downloadable!] (restricted)
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  15. Kashyap, Anil K. & Stein, Jeremy C., 1995. "The impact of monetary policy on bank balance sheets," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 42(1), pages 151-195, June. [Downloadable!] (restricted)
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  16. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September. [Downloadable!] (restricted)
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Full references

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. Christopher F Baum & Mustafa Caglayan & Neslihan Ozkan, 2005. "The second moments matter: The response of bank lending behaviour to macroeconomic uncertainty," Working Papers 2005_27, Department of Economics, University of Glasgow. [Downloadable!]
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