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Working Paper - 211 - Bank Lending Channel of Monetary Policy Transmission in Zambia: Evidence from Bank-Level Data

This study explores the effect of monetary policy on lending behaviour of commercial banks in Zambia. Interacting bank-specific factors with indicators of monetary policy, we find evidence of bank lending channel operating mainly through large banks. The effect of monetary policy on medium sized banks is moderate while it is virtually non-existent for smaller banks. Furthermore, price signals, rather than quantity aggregates, matter the most in the transmission of monetary policy. The results lend strong support to the central bank’s recent shift in monetary policy framework towards interest rate targeting from using monetary aggregates to strengthen effectiveness of monetary policy. Crucially, the findings suggest that the ability of monetary policy to generate large distributional effects also depends on whether or not it impacts the reserves of large sized banks.

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Paper provided by African Development Bank in its series Working Paper Series with number 2147.

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Date of creation: 30 Dec 2014
Handle: RePEc:adb:adbwps:2147
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  1. Ben S. Bernanke & Ilian Mihov, 1998. "Measuring Monetary Policy," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 869-902.
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  22. Jaromir Benes & Andrew Berg & Rafael Portillo & Mai Dao & Alfredo Baldini, 2012. "Monetary Policy in Low Income Countries in the Face of the Global Crisis; The Case of Zambia," IMF Working Papers 12/94, International Monetary Fund.
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  25. Carlo Cottarelli & Angeliki Kourelis, 1994. "Financial Structure, Bank Lending Rates, and the Transmission Mechanism of Monetary Policy," IMF Staff Papers, Palgrave Macmillan, vol. 41(4), pages 587-623, December.
  26. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
  27. Juanjuan Zhang & Peng Liu, 2012. "Rational Herding in Microloan Markets," Management Science, INFORMS, vol. 58(5), pages 892-912, May.
  28. Bhaumik, Sumon Kumar & Dang, Vinh & Kutan, Ali M., 2011. "Implications of bank ownership for the credit channel of monetary policy transmission: Evidence from India," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2418-2428, September.
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