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Identifying the balance sheet and the lending channels of monetary transmission: A loan-level analysis

Uluc Aysun () and Ralf Hepp ()

Journal of Banking & Finance, 2013, vol. 37, issue 8, 2812-2822

Abstract: We make a novel attempt at comparing the strength of the lending and balance sheet channels of monetary transmission. To make this comparison, we use loan-level data to determine how borrower balance sheets and bank liquidity are related to bank lending decisions and how monetary policy can affect these relationships. The key innovation in this paper is the use of loan-level data. This enables us to measure the independent effects of the two channels and directly account for borrower balance sheets and lender liquidity instead of using proxies. Our results show that the balance sheet channel is the main mechanism through which monetary policy shocks are transmitted to the economy and that the lending channel does not play a significant role.

Keywords: Balance sheet channel; Lending channel; Loan-level data; Monetary transmission (search for similar items in EconPapers)
JEL-codes: E44 E51 E52 G21 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:37:y:2013:i:8:p:2812-2822

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