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Hampered Monetary Policy Transmission ‐ A Supply‐Side Story?

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  • LOTTA HECKMANN‐DRAISBACH
  • JULIA HARDT

Abstract

This paper shows that the supply side of credit is a major factor for hampered monetary policy transmission in monopolistic banking markets. Our stress test data containing projected interest rates of all 1,555 small and medium‐sized banks in Germany under two hypothetical scenarios provide a clear way to partial out demand shocks that are unrelated to monetary policy; we are thus able to show that while market power banks charge higher loan rates, they spare their borrowers a part of exogenous monetary policy contractions and withhold a substantial part of rising rates from their depositors. Because high market power banks are relatively more profitable, these banks could be able to insure their relationship customers against adverse shocks.

Suggested Citation

  • Lotta Heckmann‐Draisbach & Julia Hardt, 2026. "Hampered Monetary Policy Transmission ‐ A Supply‐Side Story?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 58(4), pages 1051-1087, June.
    • Handle: RePEc:wly:jmoncb:v:58:y:2026:i:4:p:1051-1087
    DOI: 10.1111/jmcb.13216
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