Is the Lending Channel of Monetary Policy Dominant in Australia?

Tomoya Suzuki

The Economic Record, 2004, vol. 80, issue 249, 145-156

Abstract: The transmission process of monetary policy is a longstanding macroeconomic issue. The lending view is that a monetary tightening affects aggregate demand by shifting the supply schedule of bank loans left. The contraction of bank loans does not necessarily mean a shift of the supply schedule. Therefore, testing the lending view requires the identification of the shifts of the demand and supply schedules in the bank loan market. This paper employs an original approach, finding that the lending channel is not dominant in Australia. The paper also examines features of Australian banks’ behaviour which make the lending channel less dominant.

Date: 2004
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