Working Paper - 211 - Bank Lending Channel of Monetary Policy Transmission in Zambia: Evidence from Bank-Level Data

Anthony Simpasa (), Boaz Nandwa and Tiguéné Nabassaga

Working Paper Series from African Development Bank

Abstract: This study explores the effect of monetary policy on lending behaviour of commercial banks in Zambia. Interacting bank-specific factors with indicators of monetary policy, we find evidence of bank lending channel operating mainly through large banks. The effect of monetary policy on medium sized banks is moderate while it is virtually non-existent for smaller banks. Furthermore, price signals, rather than quantity aggregates, matter the most in the transmission of monetary policy. The results lend strong support to the central bank’s recent shift in monetary policy framework towards interest rate targeting from using monetary aggregates to strengthen effectiveness of monetary policy. Crucially, the findings suggest that the ability of monetary policy to generate large distributional effects also depends on whether or not it impacts the reserves of large sized banks.

Date: 2014-12-30
New Economics Papers: this item is included in nep-mac and nep-mon
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