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Heterogeneous Bank Lending Responses to Monetary Policy: New Evidence from a Real-time Identifiation

Heterogeneous Bank Lending Responses to Monetary Policy: New Evidence from a Real-time Identifiation
Heterogeneous Bank Lending Responses to Monetary Policy: New Evidence from a Real-time Identifiation
Heterogeneity in bank responses to monetary policy is consistent with an aggregate lending channel. However, estimates of bank responses are typically obtained using realized federal funds rate changes, which are endogenous to expected, macroeconomic fundamentals. As such, estimated heterogeneity can arise from expected fundamentals. Using an exogenous policy measure identified from narratives on FOMC intentions and real-time forecasts, we ?nd greater heterogeneity in responses. There is a much stronger monetary policy transmission to smaller banks. The shielding of lending amongst holding companies is larger using the exogenous measure. Unlike previous research, we find that holdings of securities amplify exogenous policy transmission, while equity capital negates it. The results highlight the importance of controlling for policy endogeneity in future studies of bank lending behavior.
monetary transmission, lending channel, monetary policy identification, banking JEL codes: E44, E50, G21
University of Southampton
Bluedorn, John C.
f2ebe71c-2c3a-443b-a88c-659bcd483b3a
Bowdler, Christopher
7f89c248-64f6-4462-87fb-c14c4ac1a49c
Koch, Christoffer
5f29a1fe-af33-4242-a5b5-c147f1606a60
Bluedorn, John C.
f2ebe71c-2c3a-443b-a88c-659bcd483b3a
Bowdler, Christopher
7f89c248-64f6-4462-87fb-c14c4ac1a49c
Koch, Christoffer
5f29a1fe-af33-4242-a5b5-c147f1606a60

Bluedorn, John C., Bowdler, Christopher and Koch, Christoffer (2009) Heterogeneous Bank Lending Responses to Monetary Policy: New Evidence from a Real-time Identifiation Southampton, GB. University of Southampton

Record type: Monograph (Working Paper)

Abstract

Heterogeneity in bank responses to monetary policy is consistent with an aggregate lending channel. However, estimates of bank responses are typically obtained using realized federal funds rate changes, which are endogenous to expected, macroeconomic fundamentals. As such, estimated heterogeneity can arise from expected fundamentals. Using an exogenous policy measure identified from narratives on FOMC intentions and real-time forecasts, we ?nd greater heterogeneity in responses. There is a much stronger monetary policy transmission to smaller banks. The shielding of lending amongst holding companies is larger using the exogenous measure. Unlike previous research, we find that holdings of securities amplify exogenous policy transmission, while equity capital negates it. The results highlight the importance of controlling for policy endogeneity in future studies of bank lending behavior.

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More information

Published date: August 2009
Keywords: monetary transmission, lending channel, monetary policy identification, banking JEL codes: E44, E50, G21

Identifiers

Local EPrints ID: 80207
URI: https://eprints.soton.ac.uk/id/eprint/80207
PURE UUID: d106d848-9e20-475d-9d92-4bba371e2cd9

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Date deposited: 24 Mar 2010
Last modified: 18 Jul 2017 23:14

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Contributors

Author: John C. Bluedorn
Author: Christopher Bowdler
Author: Christoffer Koch

University divisions

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