BANK EFFICIENCY AND THE EFFECTIVENESS OF MONETARY POLICY

Michael R. Jonas and Sharmila K. King

Contemporary Economic Policy, 2008, vol. 26, issue 4, 579-589

Abstract: Advances in information technology and bank consolidation have altered the way banks operate by necessitating that banks control costs and provide services efficiently to remain competitive. Given the unique role bank operations play in the transmission of monetary policy, a key unresolved question is whether bank efficiency alters monetary policy outcomes. Using a stochastic frontier approach to measure cost‐efficiency and panel data of U.S. bank balance sheets, we show that banks with greater cost‐efficiency are more sensitive to monetary shocks. (JEL E52, E44, E51)

Date: 2008
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