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Heterogeneous Bank Lending Responses to Monetary Policy

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  • John C Bluedorn
  • Christopher Bowdler
  • Christoffer Koch

Abstract

We present new evidence on how heterogeneity in banks interacts with monetary policy changes to impact bank lending. Using an exogenous policy measure identified from narratives on FOMC intentions and real-time economic forecasts, we find much 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 the monetary policy’s effects with those of changes in expected macrofundamentals. 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 International Monetary Fund in its series IMF Working Papers with number 13/118.

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Length: 39
Date of creation: 22 May 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/118

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Related research

Keywords: Monetary policy; Banking sector; Loans; Economic models; Monetary Transmission; Lending Channel; Monetary Policy Identification; inflation; holding company; bank holding; bank holding company; monetary economics; monetary fund; bank lending behavior; monetary transmission mechanism; transmission of monetary policy; tight monetary policy; bank assets; central bank; aggregate demand; monetary shocks; bank responses; liquid asset; banks ’ loan; contractionary monetary policy; bank capitalization; monetary control; monetary policy regimes; bank liquidity; money market; bank holding companies; exogenous monetary contraction; restrictive monetary policy; bank size;

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References

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  1. Michael R. Jonas & Sharmila K. King, 2008. "Bank Efficiency And The Effectiveness Of Monetary Policy," Contemporary Economic Policy, Western Economic Association International, Western Economic Association International, vol. 26(4), pages 579-589, October.
  2. Nicola Cetorelli & Linda S. Goldberg, 2012. "Banking Globalization and Monetary Transmission," Journal of Finance, American Finance Association, American Finance Association, vol. 67(5), pages 1811-1843, October.
  3. Morgan, Donald P, 1998. "The Credit Effects of Monetary Policy: Evidence Using Loan Commitments," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 30(1), pages 102-18, February.
  4. Giordani, Paolo, 2000. "An alternative explanation of the price puzzle," Working Paper Series in Economics and Finance 414, Stockholm School of Economics, revised 06 Dec 2000.
  5. Faust, Jon & Wright, Jonathan H., 2008. "Efficient forecast tests for conditional policy forecasts," Journal of Econometrics, Elsevier, Elsevier, vol. 146(2), pages 293-303, October.
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  9. Orphanides, Athanasios, 1999. "The Quest for Prosperity Without Inflation," Working Paper Series 93, Sveriges Riksbank (Central Bank of Sweden).
  10. Bluedorn, John C. & Bowdler, Christopher, 2011. "The open economy consequences of U.S. monetary policy," Journal of International Money and Finance, Elsevier, Elsevier, vol. 30(2), pages 309-336, March.
  11. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, Econometric Society, vol. 49(6), pages 1417-26, November.
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  13. Ben S. Bernanke & Alan S. Blinder, 1989. "The federal funds rate and the channels of monetary transmission," Working Papers 89-10, Federal Reserve Bank of Philadelphia.
  14. Strongin, Steven, 1995. "The identification of monetary policy disturbances explaining the liquidity puzzle," Journal of Monetary Economics, Elsevier, Elsevier, vol. 35(3), pages 463-497, June.
  15. Kishan, Ruby P & Opiela, Timothy P, 2000. "Bank Size, Bank Capital, and the Bank Lending Channel," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 32(1), pages 121-41, February.
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Cited by:
  1. Deniz Igan & Alain N. Kabundi & Francisco Nadal-De Simone & Natalia T. Tamirisa, 2013. "Monetary Policy and Balance Sheets," IMF Working Papers 13/158, International Monetary Fund.

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