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The Asymmetric Effects of Monetary Policy and Bank Credits in Taiwan Banking Industry - A Dynamic Panel Data Analysis

Author

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  • Jui-Chuan Chang

    (Department of Economics, National Chi Nan University, Taiwan)

  • Ching-Chuan Tsong

    (Department of Economics, National Chi Nan University, Taiwan)

  • Chieh-Tsung Wu

    (Department of Economics, National Chi Nan University, Taiwan)

Abstract

This paper investigates whether distributional effect arising from the impact of monetary policy on bank credits will be different when monetary policy is asymmetric. Methodologically, we use a set of high frequency panel data for Taiwan commercial banks and adopt Arellano and Bond's (1991) generalized method of moments approach to conduct our empirical analysis. First of all, we investigate whether there exist the distributional effects of monetary policy on bank lending behavior which is associated with bank balance sheet characteristics, such as asset size and liquidity strength. In other words, we can show the existence of bank lending channel. Secondly, we examine the differentials of bank credits in response to a contractionary policy and expansionary policy. We then can prove monetary policy is asymmetric. Lastly, we consider the link between the monetary policy asymmetry and the distributional effect of bank credits. Our empirical results find that the bank lending channel of monetary transmission is operative in Taiwan and that the degree of the asymmetric policy effect depends on the bank balance sheet characteristics. This study not merely contributes to understanding the monetary transmission mechanism in Taiwan, but also provides the reference for policy-making.

Suggested Citation

  • Jui-Chuan Chang & Ching-Chuan Tsong & Chieh-Tsung Wu, 2010. "The Asymmetric Effects of Monetary Policy and Bank Credits in Taiwan Banking Industry - A Dynamic Panel Data Analysis," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 6(2), pages 229-246, July.
    • Handle: RePEc:jec:journl:v:6:y:2010:i:2:p:229-246
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    More about this item

    Keywords

    bank lending channel; monetary policy; distributional effect;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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