Bank behavior, interest rate targeting and monetary policy transmission

Oliver Hülsewig

No 43, W.E.P. - Würzburg Economic Papers from University of Würzburg, Department of Economics

Abstract: In this paper, we address the existence of the credit channel in the transmission of monetary policy in Germany by means of a structural analysis of aggregate bank loan data. The analysis is based on a stylized model of the banking firm that characterizes the loan supply decisions of banks when monetary policy is implemented through an interest rate targeting. Using the model as a guide, we apply a vector error correction (VECM) suggested by Johansen (1988) that allows to derive long-run loan supply and loan demand relationships by imposing restrictions on cointegration vectors. The short-run dynamics of the VECM is investigated on the basis of impulse response analysis, which sets out the impact of a monetary policy shock on the variables in the system. Empirical evidence in support of the credit channel can be reported.

Keywords: Monetary Policy Transmission; Credit Channel; Vector Error Correction Model (search for similar items in EconPapers)
JEL-codes: E44 E52 (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:wuewep:43

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