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The Bank Lending Channel of Monetary Policy of Nepal: Evidence from Bank Level

  • Birendra Bahadur Budha

    ()

    (Nepal Rastra Bank)

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    This paper examines the bank lending channel of monetary policy transmission in Nepal using data during 2003-2012. Using the dynamic Arellano-Bond GMM estimation with annual data of 25 Nepalese commercial banks, this study tries to estimate the loan supply responses of the Nepalese Commercial banks, depending on their balance sheet characteristics. The main results suggest that banks play a role in Nepal's monetary transmission mechanism. The empirical result shows that the bank lending decreases after a monetary tightening. Bank size is found to have significant impact on loan supply in Nepal. Similarly, liquidity in the case of private sector banks is also playing significant role in the bank lending in response to the monetary policy changes. But, the capitalization is found to have no significant impact on the bank lending. The bank loan supply is also found to be significantly affected by the gross domestic product.

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    File URL: http://www.nrb.org.np/ecorev/pdffiles/nrbwp201317.pdf
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    Paper provided by Nepal Rastra Bank, Research Department in its series NRB Working Paper with number 17/2013.

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    Length: 22 pages
    Date of creation: Jun 2013
    Date of revision:
    Handle: RePEc:nrb:wpaper:nrbwp201317
    Contact details of provider: Web page: http://www.nrb.org.np/ecorev/
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    1. Adel Boughrara & Samir Ghazouani, 2009. "Is There A Bank Lending Channel Of Monetary Policy In Selected Mena Countries? A Comparative Analysis," Working Papers 471, Economic Research Forum, revised Mar 2009.
    2. Michael Ehrmann & Leonardo Gambacorta & Jorge Mart�nez-Pag�s & Patrick Sevestre & Andreas Worms, 2001. "Fynancial Systems and the Role of Banks in Monetary Policy Transmission in the Euro area," Temi di discussione (Economic working papers) 432, Bank of Italy, Economic Research and International Relations Area.
    3. Rania A. Al-Mashat & Andreas Billmeier, 2007. "The Monetary Transmission Mechanism in Egypt," IMF Working Papers 07/285, International Monetary Fund.
    4. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
    5. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
    6. de Haan, Leo, 2001. "The credit channel in the Netherlands: evidence from bank balance sheets," Working Paper Series 0098, European Central Bank.
    7. Tuuli Juurikkala & Alexei Karas & Laura Solanko, 2011. "The Role of Banks in Monetary Policy Transmission: Empirical Evidence from Russia," Review of International Economics, Wiley Blackwell, vol. 19(1), pages 109-121, 02.
    8. Favero, Carlo A. & Flabbi, Luca & Giavazzi, Francesco, 1999. "The Transmission Mechanism of Monetary Policy in Europe: Evidence from Banks' Balance Sheets," CEPR Discussion Papers 2303, C.E.P.R. Discussion Papers.
    9. Koray Alper & Timur Hulagu & Gursu Keles, 2012. "An Empirical Study on Liquidity and Bank Lending," Working Papers 1204, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    10. Farinha, Luísa & Robalo Marques, Carlos, 2001. "The bank lending channel of monetary policy: identification and estimation using Portuguese micro bank data," Working Paper Series 0102, European Central Bank.
    11. Joe Peek & Eric S. Rosengren, 1995. "Bank lending and the transmission of monetary policy," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 39, pages 47-79.
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