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Identifying the balance sheet and lending channels of monetary transmission: A loan-level analysis

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Author Info

  • Uluc Aysun

    ()
    (University of Central Florida, Orlando, FL)

  • Ralf Hepp

    ()
    (Fordham University, Bronx, NY)

Abstract

We make a novel attempt at comparing the strength of the lending and balance sheet channels of monetary transmission. To make this comparison, we use loan-level data to determine how borrower balance sheets and bank liquidity are related to bank lending decisions and how monetary policy can affect these relationships. The key innovation in this paper is the use of loan-level data. This enables us to measure the independent effects of the two channels and directly account for borrower balance sheets and lender liquidity instead of using proxies. Our results show that the balance sheet channel is the main mechanism through which monetary policy shocks are transmitted to the economy and that the lending channel does not play a significant role.

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Bibliographic Info

Paper provided by University of Central Florida, Department of Economics in its series Working Papers with number 2011-01.

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Length: 33 Pages
Date of creation: Jul 2011
Date of revision:
Handle: RePEc:cfl:wpaper:2011-01

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Postal: PO Box 161400, Orlando, FL 32816
Phone: (407) 823-3266
Web page: http://www.bus.ucf.edu/economics/
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Related research

Keywords: balance sheet channel; lending channel; loan-level data; monetary transmission;

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References

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Cited by:
  1. Uluc Aysun, 2013. "Bank size and macroeconomic shock transmission: Are there economic volatility gains from shrinking large, too big to fail banks?," Working Papers, University of Central Florida, Department of Economics 2013-02, University of Central Florida, Department of Economics.

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