The Effect of Monetary Policy on Bank Lending and Aggregate Output: Asymmetries from Nonlinearities in the Lending Channel

Jui-Chuan Chang () and Dennis Jansen
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Jui-Chuan Chang: Department of Economics National Chi-Nan University

Annals of Economics and Finance, 2005, vol. 6, issue 1, 129-153

Abstract: This paper examines the asymmetric effects of monetary policy on output and the role of bank-lending behavior. We investigate whether contractionary and expansionary policies have asymmetric impacts on bank loans, and whether there are further differences in the response of small banks and big banks to policy actions. We also investigate the link between changes in bank lending and aggregate economic activity. Our goal is to simultaneously capture the existence of the lending view of the monetary transmission mechanism, the strong relationship between loan growth and output growth, and the asymmetric effect of monetary policy on output. We use a nonlinear vector autoregressive approach to carry out our analysis. Our results show that asymmetry in the response of bank lending to monetary policy is not a substantially contributing factor in explaining the different responses of output to contractionary and expansionary policy.

Keywords: Bank Lending; Monetary Transmission Mechanism; Asymmetries; Smooth Transition Regression; Cointegration (search for similar items in EconPapers)
JEL-codes: C32 E52 G18 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2005:v:6:i:1:p:129-153

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