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The Multi-Regime Bank Lending Channel and the Effectiveness of the Polish Monetary Policy Transmission During Transition

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  • Kierzenkowski, Rafal
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    Abstract

    This Paper examines the consequences of interactions between the bank lending channel and the traditional interest rate and exchange rate channels on the effectiveness of the monetary policy transmission in Poland since 1994. First, we develop a small open-economy credit-augmented model. Under two different exchange rate arrangements, namely a fixed rate system with sterilized intervention and a pure floating rate system, we establish that the bank lending channel can generate several regimes in the transmission of monetary policy shocks. In essence, it may not only amplify, as usually considered in the literature, but it may also attenuate the impact of monetary policy on output, prices and the real exchange rate as compared to the standard effects of both the interest rate and the exchange rate channels. The variations in the interest rate spread between the loan rate and the central bank's intervention rate are found to be a good indicator of amplification and attenuation regimes, provided that there is a positive relationship between both rates. Second, we find an attenuation bank lending channel regime from the beginning of 1996 to the end of 1998, and on average a neutral effect of the bank lending channel since then.

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    Bibliographic Info

    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3624.

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    Date of creation: Nov 2002
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    Handle: RePEc:cpr:ceprdp:3624

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    Keywords: bank lending channel; credit channel; monetary policy; monetary transmission mechanism; transition economies;

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    1. Spencer Dale & Andrew Haldane, 1993. "Interest rate control in a model of monetary policy," Bank of England working papers 17, Bank of England.
    2. 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.
    3. Jacob A. Frenkel & Carlos A. Rodriguez, 1982. "Exchange Rate Dynamics and the Overshooting Hypothesis," NBER Working Papers 0832, National Bureau of Economic Research, Inc.
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    5. Michel Aglietta & Camille Baulant & Sandra Moatti, 2003. "Exchange Rate Management in Central Europe and the Debate on Exchange Rate Regimes," Revue économique, Presses de Sciences-Po, vol. 54(5), pages 961-982.
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    7. Ben S. Bernanke & Alan S. Blinder, 1989. "Credit, Money, and Aggregate Demand," NBER Working Papers 2534, National Bureau of Economic Research, Inc.
    8. Anil K. Kashyap & Jeremy C. Stein & David W. Wilcox, 1991. "Monetary policy and credit conditions: evidence from the composition of external finance," Finance and Economics Discussion Series 154, Board of Governors of the Federal Reserve System (U.S.).
    9. Camille Baulant & Virginie Coudert & Michel Aglietta, 1999. "Compétitivité et régime de change en Europe centrale," Revue économique, Presses de Sciences-Po, vol. 0(6), pages 1221-1236.
    10. Dibooglu, Selahattin & Kutan, Ali M., 2001. "Sources of inflation and output fluctuations in Poland and Hungary: Implications for full membership in the European Union," ZEI Working Papers B 16-2001, ZEI - Center for European Integration Studies, University of Bonn.
    11. Claudia Buch, 2001. "Money demand in Hungary and Poland," Applied Economics, Taylor & Francis Journals, vol. 33(8), pages 989-999.
    12. Ghatak, Subrata & Mulhern, Alan & Stewart, Chris, 2003. "Determinants of intended expansion of Polish small firms," Journal of Policy Modeling, Elsevier, vol. 25(3), pages 287-296, April.
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