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Trusting the bankers: a new look at the credit channel of monetary policy

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  • Ciccarelli, Matteo
  • Peydró, José-Luis
  • Maddaloni, Angela

Abstract

Any empirical analysis of the credit channel faces a key identification challenge: changes in credit supply and demand are difficult to disentangle. To address this issue, we use the detailed answers from the US and the confidential and unique Euro area bank lending surveys. Embedding this information within a standard VAR model, we find that: (1) the credit channel is active through the balance-sheets of households, firms and banks; (2) the credit channel amplifies the impact of a monetary policy shock on GDP and inflation; (3) for business loans, the impact through the (supply) bank lending channel is higher than through the demand and balance-sheet channels. For household loans the demand channel is the strongest; (4) during the crisis, credit supply restrictions to firms in the Euro area and tighter standards for mortgage loans in the US contributed significantly to the reduction in GDP. JEL Classification: E32, E44, E5, G01, G21

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1228.

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Date of creation: Jul 2010
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Handle: RePEc:ecb:ecbwps:20101228

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Related research

Keywords: bank lending channel; credit channel; credit crunch; Lending standards; monetary policy; Non-financial borrower balance-sheet channel;

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  1. Paolo Del Giovane & Ginette Eramo & Andrea Nobili, 2010. "Disentangling demand and supply in credit developments: a survey-based analysis for Italy," Temi di discussione (Economic working papers) 764, Bank of Italy, Economic Research and International Relations Area.
  2. de Bondt, Gabe & Maddaloni, Angela & Peydró, José-Luis & Scopel, Silvia, 2010. "The euro area Bank Lending Survey matters: empirical evidence for credit and output growth," Working Paper Series 1160, European Central Bank.
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