Banks' Financial Conditions and the Transmission of Monetary Policy: A FAVAR Approach

Ramona Jimborean and Jean-Stéphane Méesonnier
Additional contact information
Jean-Stéphane Méesonnier: Banque de France
Authors registered in the RePEc Author Service: Jean-Stéphane Mésonnier

International Journal of Central Banking, 2010, vol. 6, issue 34, 71-117

Abstract: We propose a novel approach to assess whether banks’ financial conditions, as reflected by bank-level information, matter for the transmission of monetary policy, while reconciling the micro and macro levels of analysis. We include factors summarizing large sets of individual bank balance sheet ratios in a standard factor-augmented vector autoregression model (FAVAR) of the French economy. We first find that factors extracted from banks’ liquidity and leverage ratios predict macroeconomic fluctuations. This suggests a potential scope for macroprudential policies aimed at dampening the procyclical effects of adjustments in banks’ balance sheet structures. However, we also find that fluctuations in bank ratio factors are largely irrelevant for the transmission of monetary shocks. Thus, there is little point in monitoring the information contained in bank balance sheets, above the information already contained in credit aggregates, as far as monetary policy transmission is concerned.

JEL-codes: E44 E52 G21 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://www.ijcb.org/journal/ijcb10q4a4.pdf (application/pdf)
http://www.ijcb.org/journal/ijcb10q4a4.htm (text/html)

Related works:
Working Paper: Banks' financial conditions and the transmission of monetary policy: a FAVAR approach (2010)
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:ijc:ijcjou:y:2010:q:4:a:4

Access Statistics for this article

International Journal of Central Banking is currently edited by Loretta J. Mester

More articles in International Journal of Central Banking from International Journal of Central Banking
Bibliographic data for series maintained by Bank for International Settlements ().