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Bank behavior, interest rate targeting and monetary policy transmission

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  • Hülsewig, Oliver

Abstract

In this paper, we address the existence of the credit channel in the transmission of monetary policy in Germany by means of a structural analysis of aggregate bank loan data. The analysis is based on a stylized model of the banking firm that characterizes the loan supply decisions of banks when monetary policy is implemented through an interest rate targeting. Using the model as a guide, we apply a vector error correction (VECM) suggested by Johansen (1988) that allows to derive long-run loan supply and loan demand relationships by imposing restrictions on cointegration vectors. The short-run dynamics of the VECM is investigated on the basis of impulse response analysis, which sets out the impact of a monetary policy shock on the variables in the system. Empirical evidence in support of the credit channel can be reported.

Suggested Citation

  • Hülsewig, Oliver, 2003. "Bank behavior, interest rate targeting and monetary policy transmission," W.E.P. - Würzburg Economic Papers 43, University of Würzburg, Department of Economics.
    • Handle: RePEc:zbw:wuewep:43
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    Cited by:

    1. G.Levieuge, 2015. "the coherence and the predictive content of the French Bank Lending Survey’s indicators (in French)," Working papers 567, Banque de France.
    2. Guglielmo Maria Caporale & Luis A. Gil-Alana, 2020. "Modelling Loans to Non-Financial Corporations within the Eurozone: A Long-Memory Approach," CESifo Working Paper Series 8674, CESifo.
    3. Kok, Christoffer & Rossi, Carlotta & Marqués-Ibáñez, David, 2009. "Modelling loans to non-financial corporations in the euro area," Working Paper Series 989, European Central Bank.

    More about this item

    Keywords

    Monetary Policy Transmission; Credit Channel; Vector Error Correction Model;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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