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What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?

  • Jeremy C. Stein
  • Anil K. Kashyap

We study the monetary-transmission mechanism with a data set that includes quarterly observations of every insured U.S. commercial bank from 1976 to 1993. We find that the impact of monetary policy on lending is stronger for banks with less liquid balance sheets--i.e., banks with lower ratios of securities to assets. Moreover, this pattern is largely attributable to the smaller banks, those in the bottom 95 percent of the size distribution. Our results support the existence of a "bank lending channel" of monetary transmission, though they do not allow us to make precise statements about its quantitative importance.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.90.3.407
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 90 (2000)
Issue (Month): 3 (June)
Pages: 407-428

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Handle: RePEc:aea:aecrev:v:90:y:2000:i:3:p:407-428
Note: DOI: 10.1257/aer.90.3.407
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  10. Anil K. Kashyap & Jeremy C. Stein, 1994. "Monetary Policy and Bank Lending," NBER Chapters, in: Monetary Policy, pages 221-261 National Bureau of Economic Research, Inc.
  11. Kashyap, Anil K & Lamont, Owen A & Stein, Jeremy C, 1994. "Credit Conditions and the Cyclical Behavior of Inventories," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 565-92, August.
  12. Oliner, Stephen D & Rudebusch, Glenn D, 1996. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance: Comment," American Economic Review, American Economic Association, vol. 86(1), pages 300-309, March.
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  17. Peek, Joe & Rosengren, Eric, 1995. "The Capital Crunch: Neither a Borrower nor a Lender Be," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 625-38, August.
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  23. Jeremy C. Stein, 1995. "An Adverse Selection Model of Bank Asset and Liability Management with Implications for the Transmission of Monetary Policy," NBER Working Papers 5217, National Bureau of Economic Research, Inc.
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  25. Stephen G. Cecchetti, 1995. "Distinguishing theories of the monetary transmission mechanism," Review, Federal Reserve Bank of St. Louis, issue May, pages 83-97.
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  28. Samolyk, Katherine A., 1994. "Banking conditions and regional economic performance evidence of a regional credit channel," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 259-278, October.
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  30. Robert D. Laurent, 1988. "An interest rate-based indicator of monetary policy," Economic Perspectives, Federal Reserve Bank of Chicago, issue Jan, pages 3-14.
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