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Was the credit channel a key monetary transmission mechanism following the recent financial crisis in the Republic of Korea?

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  • Kim, Hyun E.
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    Abstract

    The author investigates whether the credit channel is a key monetary transmission mechanism in the Republic of Korea, especially after its recent financial crisis. To identify the existence of a distinctive credit channel (especially the bank lending channel), he applies two empirical tests to both aggregate financial data and disaggregated bank balance sheet data. As a more definitive analysis of the role of the credit channel, he estimates a disequilibrium model of the bank loan market, specifying separate loan demand and supply equations to characterize the credit crunch and identify its intensity in the wake of the crisis. The author finds convincing evidence ofthe importance of the credit channel in the aftermath of the crisis. Bank lending plays a significant independent role in amplifying the real effects of the tightened monetary policy implemented in response to the crisis. There is strong evidence to suggest a substantial excess demand for bank loans following the crisis. This excess demand was caused by a sharp decline in loan supply largely attributable to pervasive and stringent bank capital regulation (a capital-induced bank credit crunch), rather than by weak demand for loans.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2103.

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    Date of creation: 30 Apr 1999
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    Handle: RePEc:wbk:wbrwps:2103

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    Keywords: Economic Theory&Research; Payment Systems&Infrastructure; International Terrorism&Counterterrorism; Financial Intermediation; Banks&Banking Reform; Banks&Banking Reform; Economic Stabilization; Financial Crisis Management&Restructuring; Economic Theory&Research; Financial Intermediation;

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    Cited by:
    1. Herrera, Santiago & Hurlin, Christophe & Zaki, Chahir, 2013. "Why don't banks lend to Egypt's private sector?," Economic Modelling, Elsevier, Elsevier, vol. 33(C), pages 347-356.
    2. Hurlin, Christophe & Kierzenkowski, Rafal, 2003. "Credit Market Disequilibrium in Poland : Can We Find What We Expect ? Non-Stationarity and the"Min" Condition," Economics Papers from University Paris Dauphine 123456789/3410, Paris Dauphine University.
    3. Hurlin, Christophe & Kierzenkowski, Rafal, 2007. "Credit market disequilibrium in Poland: Can we find what we expect?: Non-stationarity and the short-side rule," Economic Systems, Elsevier, Elsevier, vol. 31(2), pages 157-183, June.
    4. Kristin Forbes, 2000. "The Asian Flu and Russian Virus: Firm-level Evidence on How Crises are Transmitted Internationally," NBER Working Papers 7807, National Bureau of Economic Research, Inc.
    5. Luc Bauwens & Michel Lubrano, 2007. "Bayesian Inference in Dynamic Disequilibrium Models: An Application to the Polish Credit Market," Econometric Reviews, Taylor & Francis Journals, Taylor & Francis Journals, vol. 26(2-4), pages 469-486.
    6. Raden Pardede, 1999. "Survey of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 35(2), pages 3-40.
    7. Enrique López & Adolfo Barajas & Hugo Oliveros, 2001. "¿ Por qué en Colombia el Crédito al Sector Privado es tan Reducido?," BORRADORES DE ECONOMIA 003787, BANCO DE LA REPÚBLICA.

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