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The Role of Banks in the Czech Monetary Policy Transmission Mechanism

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Abstract

With this work, we aim to enrich the knowledge about the monetary policy transmission mechanism in the Czech Republic with empirical evidence on the impact of monetary policy on bank lending. Using a panel of quarterly time series for Czech commercial banks for the period 1996-2001, we study the overall effect of monetary policy changes on the growth rate of loans and the characteristics of the supply of loans. The characterization of the credit market's supply side allows us to make inferences on the operativeness of the credit channel (the bank lending channel and the broad credit channel) of the monetary transmission mechanism. We find that changes in monetary policy alter the growth rate of loans with considerably stronger magnitude in the period 1999-2001 than in the period 1996-1998. From the analysis intended to capture the characteristics of the supply of loans, we conclude that the lending channel was operative in the period 1996-1998: we find cross-sectional differences in the lending reactions to monetary policy shocks due to degree of capitalization and liquidity. For the subsequent period 1999- 2001, the results also show distributive effects of monetary policy due to bank size and a bank's proportion of classified loans. In the context of steadily decreasing interest rates, this bolsters the supposition of credit rationing and hence that of an operative broad credit channel. At the same time, we find evidence of linear relationships between bank characteristics and the growth rate of loans, and again these relationships change between the two time periods. This bodes well with the changes in the structure and attitude towards lending of the Czech commercial banks.

Suggested Citation

  • Anca Pruteanu, 2004. "The Role of Banks in the Czech Monetary Policy Transmission Mechanism," Working Papers 2004/03, Czech National Bank, Research Department.
  • Handle: RePEc:cnb:wpaper:2004/03
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    File URL: http://www.cnb.cz/en/research/research_publications/cnb_wp/download/cnbwp2004No3.pdf
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    1. Thomas Reininger & Franz Schardax & Martin Summer, 2002. "Financial System Transition in Central Europe: The First Decades," SUERF Studies, SUERF - The European Money and Finance Forum, number 16 edited by Morten Balling.
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    Keywords

    Bank lending channel; broad credit channel; credit rationing; monetary transmission mechanism.;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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