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
Chowdhury, Rosen
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Jahan, Dilshad
616abeed-d9c0-4a1f-8446-4f049b94e30b
Mishra, Tapas
218ef618-6b3e-471b-a686-15460da145e0
Parhi, Mamata
5e489f1d-9fe0-44b3-8027-bfa3ec6bfbd4
7 September 2022
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).
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.
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Int J Fin Econ - 2022 - Chowdhury - Monetary policy shock and impact asymmetry in bank lending channel Evidence from the
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Accepted/In Press date: 13 August 2022
e-pub ahead of print date: 7 September 2022
Published date: 7 September 2022
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© 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
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Local EPrints ID: 470181
URI: http://eprints.soton.ac.uk/id/eprint/470181
ISSN: 1076-9307
PURE UUID: 6aa0f10a-8942-4605-9a55-d9d52ef208fa
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Date deposited: 04 Oct 2022 16:40
Last modified: 17 Mar 2024 03:36
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Author:
Rosen Chowdhury
Author:
Dilshad Jahan
Author:
Mamata Parhi
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