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Bank lending channel in India: evidence from state-level analysis

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  • Vipul Bhatt

    ()

  • N. Kishor

    ()

Abstract

This paper seeks to answer two questions: first, do monetary policy shocks affect the size of bank loans, and second, do bank loans affect real economic activity? Using annual panel data on the Indian states from 1996 to 2008, we find that money demand shocks have large and statistically significant impact on bank loans. Furthermore, using money demand shocks as instruments for bank lending à la Driscoll (J Monet Econ 51:451–471, 2004 ), we find an economically large and statistically significant effect of bank loans on output. Our findings, to some extent, reflect the dominant role played by banks in the India’s overall financial system. Copyright Springer-Verlag Berlin Heidelberg 2013

Suggested Citation

  • Vipul Bhatt & N. Kishor, 2013. "Bank lending channel in India: evidence from state-level analysis," Empirical Economics, Springer, vol. 45(3), pages 1307-1331, December.
    • Handle: RePEc:spr:empeco:v:45:y:2013:i:3:p:1307-1331
    DOI: 10.1007/s00181-012-0657-2
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    References listed on IDEAS

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    More about this item

    Keywords

    Bank lending; Monetary policy transmission; Money demand; India; Central Bank; E41; E42; E51; E52; E58;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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