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Bank liabilities and the monetary transmission mechanism

Listed author(s):
  • Steven W. Sumner


    (Department of Economics, School of Business, University of San Diego)

  • Guy Yamashiro


    (California State University, Long Beach)

Registered author(s):

    Using two sources of data on commercial bank liabilities we examine the behavior of various components of deposits following a monetary tightening (downturn) as well as a nonmonetary downturn equal in magnitude to the monetary downturn in order to better understand the portfolio behavior of commercial banks. We find that the increase in total deposits during a monetary tightening (when output is low and interest rates are high) is attributable to an increase in small time deposits and that large time deposits and demand deposits exhibit a decrease. This suggests that banks are able to, at least partially, offset the potentially adverse effects of a monetary tightening on their balance sheet by borrowing and raising additional small time deposits. Further, non-monetary downturns, when both interest rates and output are low, seem to have little effect on the liability position of banks.

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    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 31 (2011)
    Issue (Month): 2 ()
    Pages: 1413-1431

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    Handle: RePEc:ebl:ecbull:eb-11-00029
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    1. Lamont K. Black & Diana Hancock & Wayne Passmore, 2007. "Bank core deposits and the mitigation of monetary policy," Finance and Economics Discussion Series 2007-65, Board of Governors of the Federal Reserve System (U.S.).
    2. Eugenio Gaiotti & Alessandro Secchi, 2004. "Is there a cost channel of monetary policy transmission? An investigation into the pricing behaviour of 2,000 firms," Temi di discussione (Economic working papers) 525, Bank of Italy, Economic Research and International Relations Area.
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