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The Bank Lending Channel of Monetary Policy of Nepal: Evidence from Bank Level

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  • Birendra Bahadur Budha

    ()
    (Nepal Rastra Bank)

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    Abstract

    This paper examines the bank lending channel of monetary policy transmission in Nepal using data during 2003-2012. Using the dynamic Arellano-Bond GMM estimation with annual data of 25 Nepalese commercial banks, this study tries to estimate the loan supply responses of the Nepalese Commercial banks, depending on their balance sheet characteristics. The main results suggest that banks play a role in Nepal's monetary transmission mechanism. The empirical result shows that the bank lending decreases after a monetary tightening. Bank size is found to have significant impact on loan supply in Nepal. Similarly, liquidity in the case of private sector banks is also playing significant role in the bank lending in response to the monetary policy changes. But, the capitalization is found to have no significant impact on the bank lending. The bank loan supply is also found to be significantly affected by the gross domestic product.

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    File URL: http://www.nrb.org.np/ecorev/pdffiles/nrbwp201317.pdf
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    Bibliographic Info

    Paper provided by Nepal Rastra Bank, Research Department in its series NRB Working Paper with number 17/2013.

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    Length: 22 pages
    Date of creation: Jun 2013
    Date of revision:
    Handle: RePEc:nrb:wpaper:nrbwp201317

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    Web page: http://www.nrb.org.np/ecorev/
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    Keywords: Bank lending channel; bank loans; monetary policy; Nepal;

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    1. Rania Al Mashat & Andreas Billmeier, 2008. "The Monetary Transmission Mechanism in Egypt," Working Papers 411, Economic Research Forum, revised Jun 2008.
    2. Michael Ehrmann & Leonardo Gambacorta & Jorge Martìnez-Pagès & Patrick Sevestre & Andreas Worms, 2001. "Fynancial Systems and the Role of Banks in Monetary Policy Transmission in the Euro area," Temi di discussione (Economic working papers) 432, Bank of Italy, Economic Research and International Relations Area.
    3. Carlo A. Favero & Francesco Giavazzi & Luca Flabbi, 1999. "The Transmission Mechanism of Monetary Policy in Europe: Evidence from Banks' Balance Sheets," NBER Working Papers 7231, National Bureau of Economic Research, Inc.
    4. L. de Haan, 2001. "The Credit Channel in the Netherlands: Evidence from Bank Balance Sheets," WO Research Memoranda (discontinued) 674, Netherlands Central Bank, Research Department.
    5. Farinha, Luísa & Robalo Marques, Carlos, 2001. "The bank lending channel of monetary policy: identification and estimation using Portuguese micro bank data," Working Paper Series 0102, European Central Bank.
    6. Juurikkala, Tuuli & Solanko, Laura & Karas, Alexei, 2009. "The role of banks in monetary policy transmission: Empirical evidence from Russia," BOFIT Discussion Papers 8/2009, Bank of Finland, Institute for Economies in Transition.
    7. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
    8. Adel Boughrara & Samir Ghazouani, 2010. "Is There A Bank Lending Channel Of Monetary Policy In Selected Mena Countries? A Comparative Analysis," Middle East Development Journal (MEDJ), World Scientific Publishing Co. Pte. Ltd., vol. 2(02), pages 251-282.
    9. Joe Peek & Eric S. Rosengren, 1995. "Bank lending and the transmission of monetary policy," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 39, pages 47-79.
    10. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
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