Impact of Off-Balance-Sheet Activities on the Effectiveness of Monetary Policy

Dan Wu, Rong Li and Yingting Li

The North American Journal of Economics and Finance, 2024, vol. 73, issue C

Abstract: Off-balance-sheet (OBS) activities are special means of credit expansion of commercial banks, which can affect banks’ assets allocation decisions, loans supplies, and the bank lending channel of monetary policy transmission. This paper analyses the impact of OBS activities on banks’ asset allocation and on the effectiveness of monetary policy. Our findings show that increases in OBS activities weaken the effectiveness of price-based monetary policy through the bank lending channel, and this dampening effect is stronger in periods of market liquidity shortage.

Keywords: Off-balance Sheet Activities; Liquid Assets; Bank Lending Channel; Monetary Policy; Market Liquidity (search for similar items in EconPapers)
JEL-codes: E52 G21 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:73:y:2024:i:c:s1062940824001013

DOI: 10.1016/j.najef.2024.102176

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