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Bank loan portfolios and the monetary transmission mechanism

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  • den Haan, Wouter J.
  • Sumner, Steven W.
  • Yamashiro, Guy M.

Abstract

This Paper compares the responses of bank loan components to a monetary tightening with the responses to negative output shocks. Real estate and consumer loans sharply decrease during a monetary tightening but not after a negative output shock. In contrast, C&I loans (and commercial paper) sharply decrease in response to output shocks, but not in response to a monetary tightening. These results are difficult to reconcile with a bank-lending channel of monetary transmission, in which the supply of commercial and industrial (C&I) loans is constrained. Hedging and bank capital regulation provide reasons why banks may want to substitute out of real estate and consumer loans, and into C&I loans during periods of high interest rates.
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  • den Haan, Wouter J. & Sumner, Steven W. & Yamashiro, Guy M., 2007. "Bank loan portfolios and the monetary transmission mechanism," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 904-924, April.
  • Handle: RePEc:eee:moneco:v:54:y:2007:i:3:p:904-924
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    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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