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The Bank Multiplier and A New Mechanism for the Transmission of the Monetary Policy

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  • Nizam, Ahmed Mehedi

Abstract

The concept of economic multiplier has been extensively used in the design and analysis of the fiscal policy. However, it has never been used to analyse the impact of nominal interest income received by the depositors through the banking channel on the total output. Here, we investigate the impact of nominal interest income on the macroeconomy using multiplier theory. We define and calculate the corresponding multiplier values algebraically and then we empirically calculate them using impulse response analysis. Along the way, we have shown a new mechanism for the transmission of the monetary policy decision which transcends through, as we call it here, the nominal interest income channel.

Suggested Citation

  • Nizam, Ahmed Mehedi, 2019. "The Bank Multiplier and A New Mechanism for the Transmission of the Monetary Policy," MPRA Paper 91904, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:91904
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    File URL: https://mpra.ub.uni-muenchen.de/91904/1/MPRA_paper_91904.pdf
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    References listed on IDEAS

    as
    1. Nizam, Ahmed Mehedi, 2019. "On the Algebraic Calculation of the Fiscal Multiplier," MPRA Paper 91173, University Library of Munich, Germany.
    2. 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.
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    6. Sims, Christopher A., 1992. "Interpreting the macroeconomic time series facts : The effects of monetary policy," European Economic Review, Elsevier, vol. 36(5), pages 975-1000, June.
    7. Blinder, Alan S, 1987. "Credit Rationing and Effective Supply Failures," Economic Journal, Royal Economic Society, vol. 97(386), pages 327-352, June.
    8. Mr. Pau Rabanal, 2003. "The Cost Channel of Monetary Policy: Further Evidence for the United States and the Euro Area," IMF Working Papers 2003/149, International Monetary Fund.
    9. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
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    More about this item

    Keywords

    nominal interest expense; nominal lending rate; nominal interest rate; domestic credit; GDP; economic multiplier; monetary policy transmission mechanism; banking;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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