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The Bank Lending Channel and Monetary Policy Rules for European Banks: Further Extensions

Nicholas Apergis (), Stephen M. Miller () and Effrosyni Alevizopoulou
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Effrosyni Alevizopoulou: University of Piraeus

No 2012-10, Working papers from University of Connecticut, Department of Economics

Abstract: The monetary authorities affect the macroeconomic activity through various channels of influence. This paper examines the bank lending channel, which considers how central bank actions affect deposits, loan supply, and real spending. The monetary authorities influence deposits and loan supplies through its main indicator of policy, the real short-term interest rate. This paper employs the endogenously determined target interest rate emanating from the central bank’s monetary policy rule to examine the operation of the bank lending channel. Furthermore, it examines whether different bank-specific characteristics affect how European banks react to monetary shocks. That is, do sounder banks react more to the monetary policy rule than less-sound banks. In addition, inflation and output expectations alter the central bank’s decision for its target interest rate, which, in turn, affect the banking system’s deposits and loan supply. Robustness tests, using additional control variables, (i.e., the growth rate of consumption, the ratio loans to total deposits, and the growth rate of total deposits) support the previous results.

Keywords: Monetary policy rules; bank lending channel; European banks; GMM methodology (search for similar items in EconPapers)
JEL-codes: G21 E52 C33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-mac and nep-mon
Date: 2012-07
Note: Stephen M. Miller is corresponding author
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