Heterogeneous bank lending responses to monetary policy: new evidence from a real-time identification
AbstractWe present new evidence on how heterogeneity in banks interacts with monetary policy changes to impact bank lending, at both the bank and U.S. state levels. Using an exogenous policy measure identified from narratives on FOMC intentions and real-time economic forecasts, we find much stronger dynamic effects and greater heterogeneity in U.S. bank lending responses than that found in previous research based on realized federal funds rate changes. Our findings suggest that studies using realized monetary policy changes confound monetary policy’s effects with those of changes in expected macrofundamentals. In fact, estimates from identified monetary policy changes lead to a reversal of U.S. states’ ranking by credit’s sensitivity to policy. We also extend Romer and Romer (2004)’s identification scheme, and expand the time and balance sheet coverage of the U.S. banking sample.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Dallas in its series Working Papers with number 1404.
Length: 43 pages
Date of creation: 01 Mar 2014
Date of revision:
Find related papers by JEL classification:
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- 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-2014-03-30 (All new papers)
- NEP-BAN-2014-03-30 (Banking)
- NEP-CBA-2014-03-30 (Central Banking)
- NEP-MAC-2014-03-30 (Macroeconomics)
- NEP-MON-2014-03-30 (Monetary Economics)
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