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The Impact of Monetary Policy on Bank Balance Sheets

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  • Anil K Kashyap
  • Jeremy C. Stein

Abstract

This paper uses disaggregated data on bank balance sheets to provide a test of the lending view of monetary policy transmission. We argue that if the lending view is correct, one should expect the loan and security portfolios of large and small banks to respond differentially to a contraction in monetary policy. We first develop this point with a theoretical model; we then test to see if the model's predictions are borne out in the data.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4821.

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Date of creation: Aug 1994
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Publication status: published as Carnegie-Rochester Conference Series on Public Policy, 42, 1995, pp. 151-19 5.
Handle: RePEc:nbr:nberwo:4821

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  1. Kenneth A. Froot & David S. Scharfstein & Jeremy C. Stein, 1992. "Risk Management: Coordinating Corporate Investment and Financing Policies," NBER Working Papers 4084, National Bureau of Economic Research, Inc.
  2. Benjamin M. Friedman & Kenneth N. Kuttner, 1993. "Economic activity and the short-term credit markets: an analysis of prices and quantities," Working Paper Series, Macroeconomic Issues 93-17, Federal Reserve Bank of Chicago.
  3. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
  4. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
  5. Gale, Douglas & Hellwig, Martin, 1985. "Incentive-Compatible Debt Contracts: The One-Period Problem," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 647-63, October.
  6. Christina D. Romer and David H. Romer., 1989. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," Economics Working Papers 89-107, University of California at Berkeley.
  7. Marvin J. Barth III & Valerie A. Ramey, 2000. "The Cost Channel of Monetary Transmission," NBER Working Papers 7675, National Bureau of Economic Research, Inc.
  8. Polonchek, John & Slovin, Myron B. & Sushka, Marie E., 1989. "Valuation effects of commercial bank securities offerings : A test of the information hypothesis," Journal of Banking & Finance, Elsevier, vol. 13(3), pages 443-461, July.
  9. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 1994. "The effects of monetary policy shocks: evidence from the Flow of Funds," Working Paper Series, Macroeconomic Issues 94-2, Federal Reserve Bank of Chicago.
  10. Kashyap, Anil K & Stein, Jeremy C & Wilcox, David W, 1993. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance," American Economic Review, American Economic Association, vol. 83(1), pages 78-98, March.
  11. Julio J. Rotemberg, 1982. "A Monetary Equilibrium Model with Transactions Costs," NBER Working Papers 0978, National Bureau of Economic Research, Inc.
  12. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
  13. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  14. Grossman, Sanford & Weiss, Laurence, 1983. "A Transactions-Based Model of the Monetary Transmission Mechanism," American Economic Review, American Economic Association, vol. 73(5), pages 871-80, December.
  15. Stephen D. Oliner & Glenn D. Rudebusch, 1993. "Is there a bank credit channel for monetary policy?," Finance and Economics Discussion Series 93-8, Board of Governors of the Federal Reserve System (U.S.).
  16. Gertler, Mark & Gilchrist, Simon, 1993. "The cyclical behavior of short-term business lending: Implications for financial propagation mechanisms," European Economic Review, Elsevier, vol. 37(2-3), pages 623-631, April.
  17. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 1994. "The Effects of Monetary Policy Shocks: Some Evidence from the Flow of Funds," NBER Working Papers 4699, National Bureau of Economic Research, Inc.
  18. Steven A. Sharpe, 1989. "Asymmetric information, bank lending, and implicit contracts: a stylized model of customer relationships," Finance and Economics Discussion Series 70, Board of Governors of the Federal Reserve System (U.S.).
  19. Wansley, James W & Dhillon, Upinder S, 1989. "Determinants of Valuation Effects for Security Offerings of Commercial Bank Holding Companies," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 12(3), pages 217-33, Fall.
  20. James Tobin, 1987. "Financial Intermediaries," Cowles Foundation Discussion Papers 817, Cowles Foundation for Research in Economics, Yale University.
  21. Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, vol. 47(4), pages 1367-400, September.
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