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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. 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, University of California at Berkeley 89-107, University of California at Berkeley.
  2. Gertler, Mark & Gilchrist, Simon, 1993. "The cyclical behavior of short-term business lending: Implications for financial propagation mechanisms," European Economic Review, Elsevier, Elsevier, vol. 37(2-3), pages 623-631, April.
  3. Stephen D. Oliner & Glenn D. Rudebusch, 1993. "Is there a bank credit channel for monetary policy?," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 93-8, Board of Governors of the Federal Reserve System (U.S.).
  4. Grossman, Sanford & Weiss, Laurence, 1983. "A Transactions-Based Model of the Monetary Transmission Mechanism," American Economic Review, American Economic Association, American Economic Association, vol. 73(5), pages 871-80, December.
  5. Robert Townsend, 1979. "Optimal contracts and competitive markets with costly state verification," Staff Report, Federal Reserve Bank of Minneapolis 45, Federal Reserve Bank of Minneapolis.
  6. 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.
  7. Rotemberg, Julio J, 1984. "A Monetary Equilibrium Model with Transactions Costs," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 92(1), pages 40-58, February.
  8. Froot, Kenneth A & Scharfstein, David S & Stein, Jeremy C, 1993. " Risk Management: Coordinating Corporate Investment and Financing Policies," Journal of Finance, American Finance Association, American Finance Association, vol. 48(5), pages 1629-58, December.
  9. 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, American Economic Association, vol. 83(1), pages 78-98, March.
  10. James Tobin, 1987. "Financial Intermediaries," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 817, Cowles Foundation for Research in Economics, Yale University.
  11. 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, Southern Finance Association;Southwestern Finance Association, vol. 12(3), pages 217-33, Fall.
  12. 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, Federal Reserve Bank of Chicago 93-17, Federal Reserve Bank of Chicago.
  13. Barth, Marvin J III & Ramey, Valerie A, 2000. "The Cost Channel of Monetary Transmissions," University of California at San Diego, Economics Working Paper Series, Department of Economics, UC San Diego qt7rm5q9sk, Department of Economics, UC San Diego.
  14. 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, Federal Reserve Bank of Chicago 94-2, Federal Reserve Bank of Chicago.
  15. Steven A. Sharpe, 1989. "Asymmetric information, bank lending, and implicit contracts: a stylized model of customer relationships," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 70, Board of Governors of the Federal Reserve System (U.S.).
  16. Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, American Finance Association, vol. 47(4), pages 1367-400, September.
  17. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, Elsevier, vol. 50(2), pages 237-264, April.
  18. 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, Elsevier, vol. 13(3), pages 443-461, July.
  19. Gale, Douglas & Hellwig, Martin, 1985. "Incentive-Compatible Debt Contracts: The One-Period Problem," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 52(4), pages 647-63, October.
  20. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  21. James W. Wansley & Upinder S. Dhillon, 1989. "Determinants Of Valuation Effects For Security Offerings Of Commercial Bank Holding Companies," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, Southern Finance Association;Southwestern Finance Association, vol. 12(3), pages 217-233, 09.
  22. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 1(1), pages 15-29, February.
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