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Heterogeneous bank lending responses to monetary policy: new evidence from a real-time identification

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  • Bluedorn, John C.

    (International Monetary Fund)

  • Bowdler, Christopher

    (University of Oxford)

  • Koch, Christoffer

    (Federal Reserve Bank of Dallas)

Abstract

We 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 Info

Paper provided by Federal Reserve Bank of Dallas in its series Working Papers with number 1404.

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Length: 43 pages
Date of creation: 01 Mar 2014
Date of revision:
Handle: RePEc:fip:feddwp:1404

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Keywords: Monetary Transmission; Lending Channel; Monetary Policy Identification; Banking;

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References

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  1. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September.
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  15. Gerald Carlino & Robert Defina, 1998. "The Differential Regional Effects Of Monetary Policy," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 572-587, November.
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  17. Loutskina, Elena, 2011. "The role of securitization in bank liquidity and funding management," Journal of Financial Economics, Elsevier, vol. 100(3), pages 663-684, June.
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Cited by:
  1. Deniz Igan, Alain Kabundi, Francisco Nadal De Simone, Natalia Tamirisa, 2013. "Monetary Policy and Balance Sheets," Working Papers 364, Economic Research Southern Africa.

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