The University of Southampton
University of Southampton Institutional Repository

Monetary policy shock and impact asymmetry in bank lending channel: evidence from the UK housing sector

Monetary policy shock and impact asymmetry in bank lending channel: evidence from the UK housing sector
Monetary policy shock and impact asymmetry in bank lending channel: evidence from the UK housing sector
Banks play a defining role in translating monetary policy shocks to pull or push‐effects in the housing market. The literature is ambiguous on the exact role of bank lending channel (BLC) in translating such effects into either moderation or acceleration of dynamics in the housing market. This paper argues that monetary policy shocks, of the same magnitude, can have asymmetric implications for a housing market via a state dependent BLC, particularly during expansion and recessionary phases of the business cycle. We test this hypothesis for the UK housing sector using a long quarterly data (1973Q1‐2015Q4) and employing Markov Switching Vector Auto Regression (MSVAR) models. Our results show that the magnitude of the bank lending channel is contingent upon the state of the economy, with a one standard deviation expansionary monetary policy shock producing a significant effect only in normal economic times. Further study on whether large cuts in policy rates could stimulate mortgage lending and whether there is impact asymmetry to dissimilar expansionary monetary policy shocks during financial crisis, we show that a sharp cut in policy rate indeed stimulates the BLC greater compared to smaller expansionary money policy shocks during recessions.
Markov, bank lending channel, monetary transmission, real estate economics, switching VAR
1076-9307
Chowdhury, Rosen
8ad837ed-9f52-4496-8b94-d292d6e1f1d0
Jahan, Dilshad
616abeed-d9c0-4a1f-8446-4f049b94e30b
Mishra, Tapas
218ef618-6b3e-471b-a686-15460da145e0
Parhi, Mamata
5e489f1d-9fe0-44b3-8027-bfa3ec6bfbd4
Chowdhury, Rosen
8ad837ed-9f52-4496-8b94-d292d6e1f1d0
Jahan, Dilshad
616abeed-d9c0-4a1f-8446-4f049b94e30b
Mishra, Tapas
218ef618-6b3e-471b-a686-15460da145e0
Parhi, Mamata
5e489f1d-9fe0-44b3-8027-bfa3ec6bfbd4

Chowdhury, Rosen, Jahan, Dilshad, Mishra, Tapas and Parhi, Mamata (2022) Monetary policy shock and impact asymmetry in bank lending channel: evidence from the UK housing sector. International Journal of Finance & Economics, 2022. (doi:10.1002/ijfe.2696).

Record type: Article

Abstract

Banks play a defining role in translating monetary policy shocks to pull or push‐effects in the housing market. The literature is ambiguous on the exact role of bank lending channel (BLC) in translating such effects into either moderation or acceleration of dynamics in the housing market. This paper argues that monetary policy shocks, of the same magnitude, can have asymmetric implications for a housing market via a state dependent BLC, particularly during expansion and recessionary phases of the business cycle. We test this hypothesis for the UK housing sector using a long quarterly data (1973Q1‐2015Q4) and employing Markov Switching Vector Auto Regression (MSVAR) models. Our results show that the magnitude of the bank lending channel is contingent upon the state of the economy, with a one standard deviation expansionary monetary policy shock producing a significant effect only in normal economic times. Further study on whether large cuts in policy rates could stimulate mortgage lending and whether there is impact asymmetry to dissimilar expansionary monetary policy shocks during financial crisis, we show that a sharp cut in policy rate indeed stimulates the BLC greater compared to smaller expansionary money policy shocks during recessions.

Text
Final_Revision - Accepted Manuscript
Available under License Creative Commons Attribution.
Download (121kB)
Text
Int J Fin Econ - 2022 - Chowdhury - Monetary policy shock and impact asymmetry in bank lending channel Evidence from the - Version of Record
Available under License Creative Commons Attribution.
Download (1MB)

More information

Accepted/In Press date: 13 August 2022
e-pub ahead of print date: 7 September 2022
Published date: 7 September 2022
Additional Information: Publisher Copyright: © 2022 The Authors. International Journal of Finance & Economics published by John Wiley & Sons Ltd.
Keywords: Markov, bank lending channel, monetary transmission, real estate economics, switching VAR

Identifiers

Local EPrints ID: 470181
URI: http://eprints.soton.ac.uk/id/eprint/470181
ISSN: 1076-9307
PURE UUID: 6aa0f10a-8942-4605-9a55-d9d52ef208fa
ORCID for Tapas Mishra: ORCID iD orcid.org/0000-0002-6902-2326

Catalogue record

Date deposited: 04 Oct 2022 16:40
Last modified: 07 Oct 2022 01:46

Export record

Altmetrics

Contributors

Author: Rosen Chowdhury
Author: Dilshad Jahan
Author: Tapas Mishra ORCID iD
Author: Mamata Parhi

Download statistics

Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.

View more statistics

Atom RSS 1.0 RSS 2.0

Contact ePrints Soton: eprints@soton.ac.uk

ePrints Soton supports OAI 2.0 with a base URL of http://eprints.soton.ac.uk/cgi/oai2

This repository has been built using EPrints software, developed at the University of Southampton, but available to everyone to use.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we will assume that you are happy to receive cookies on the University of Southampton website.

×