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Banks’ Regulatory Buffers, Liquidity Networks and Monetary Policy Transmission

  • Christian Merkl
  • Stéphanie Stolz

Based on a quarterly regulatory dataset for German banks from 1999 to 2004, this paper analyzes the effects of banks’ regulatory capital on the transmission of monetary policy in a system of liquidity networks. The dynamic panel regression results provide evidence in favor of the bank capital channel theory. Banks holding less regulatory capital and less interbank liquidity react more restrictively to a monetary tightening than their peers.

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1303.

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Length: 46 pages
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:kie:kieliw:1303
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  17. Gambacorta, Leonardo & Mistrulli, Paolo Emilio, 2004. "Does bank capital affect lending behavior?," Journal of Financial Intermediation, Elsevier, vol. 13(4), pages 436-457, October.
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  26. Kishan, Ruby P & Opiela, Timothy P, 2000. "Bank Size, Bank Capital, and the Bank Lending Channel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 121-41, February.
  27. Angeloni, Ignazio & Ehrmann, Michael, 2003. "Monetary policy transmission in the euro area: any changes after EMU?," Working Paper Series 0240, European Central Bank.
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  30. Leonardo Gambacorta & Paolo Emilio Mistrulli, 2003. "Bank Capital and Lending Behaviour: Empirical Evidence for Italy," Temi di discussione (Economic working papers) 486, Bank of Italy, Economic Research and International Relations Area.
  31. Mojon, Benoît & Kashyap, Anil K. & Angeloni, Ignazio & Terlizzese, Daniele, 2002. "Monetary Transmission in the Euro Area : Where Do We Stand?," Working Paper Series 0114, European Central Bank.
  32. Skander Van den Heuvel, 2006. "The Bank Capital Channel of Monetary Policy," 2006 Meeting Papers 512, Society for Economic Dynamics.
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