A new approach to the analysis of monetary policy transmission through bank capital

María Cantero Sáiz, Sergio Sanfilippo Azofra, Begoña Torre Olmo and Carlos López Gutiérrez

Finance Research Letters, 2018, vol. 24, issue C, 95-104

Abstract: The purpose of this article is to quantify how bank capital determines the effects of monetary policy on bank lending. Additionally, we test how these effects differ during monetary contractions and expansions. Using a sample of 3,028 European banks between 1999 and 2012, we find that the reduction in loans caused by monetary restrictions is similar across banks regardless of their capital. In addition, during monetary expansions, banks increase their loan supply more as they become better capitalized. Contrary to previous studies, there are differences in the monetary policy transmission through capital only during expansionary monetary regimes. These results are relevant because previous studies have not measured how the marginal effect of monetary policy on the growth of loans varies with the value of capital. We contribute to the existing literature by using a new approach that quantifies this marginal effect, which considerably improves the interpretation of statistical results from models that include continuous variable interactions and allows a better understanding of the role of bank capital in the transmission of monetary shocks.

Keywords: Monetary policy; Bank capital; Loan supply; Marginal effect; Continuous variable interaction (search for similar items in EconPapers)
JEL-codes: E44 E52 G21 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612317302325
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:24:y:2018:i:c:p:95-104

DOI: 10.1016/j.frl.2017.07.021

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().