Trusting the bankers: a new look at the credit channel of monetary policy
AbstractAny 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 InfoPaper provided by European Central Bank in its series Working Paper Series with number 1228.
Length: 59 pages
Date of creation: Jul 2010
Date of revision:
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Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- G01 - Financial Economics - - General - - - Financial Crises
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-31 (All new papers)
- NEP-BAN-2010-07-31 (Banking)
- NEP-CBA-2010-07-31 (Central Banking)
- NEP-EEC-2010-07-31 (European Economics)
- NEP-MAC-2010-07-31 (Macroeconomics)
- NEP-MON-2010-07-31 (Monetary Economics)
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.:
- 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.
- Del Giovane, Paolo & Eramo, Ginette & Nobili, Andrea, 2011. "Disentangling demand and supply in credit developments: A survey-based analysis for Italy," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2719-2732, October.
- Gabe de Bondt & Angela Maddaloni & José-Luis Peydró & Silvia Scopel, 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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