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Banks' Loan Portfolio and the Monetary Transmission Mechanism

  • Den Haan, Wouter
  • Sumner, Steven
  • Yamashiro, Guy

This Paper compares the responses of bank loan components to a monetary tightening with the responses to negative output shocks. Real estate and consumer loans sharply decrease during a monetary tightening but not after a negative output shock. In contrast, C&I loans (and commercial paper) sharply decrease in response to output shocks, but not in response to a monetary tightening. These results are difficult to reconcile with a bank-lending channel of monetary transmission, in which the supply of commercial and industrial (C&I) loans is constrained. Hedging and bank capital regulation provide reasons why banks may want to substitute out of real estate and consumer loans, and into C&I loans during periods of high interest rates.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4725.

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Date of creation: Nov 2004
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Handle: RePEc:cpr:ceprdp:4725
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  1. Jonas D.M. Fisher, 1998. "Credit market imperfections and the heterogeneous response of firms to monetary shocks," Working Paper Series, Macroeconomic Issues 96-23, Federal Reserve Bank of Chicago.
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