The Transmission Mechanism of Monetary Policy in Europe: Evidence from Banks' Balance Sheets

Carlo Favero, Luca Flabbi and Francesco Giavazzi ()

No 2303, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Available studies on asymmetries in the monetary transmission mechanism within Europe are invariably based on macro-economic evidence: such evidence is abundant but often contradictory. This paper takes a different route by using micro-economic data. We use the information contained in the balance sheets of individual banks (available from the BankScope database) to implement a case-study on the response of banks in France, Germany, Italy and Spain to a monetary tightening. The episode we study occurred during 1992, when monetary conditions were tightened throughout Europe. Evidence on such tightening is provided by the uniform squeeze in liquidity, which affected all banks in our sample. We study the first link in the transmission chain by analysing the response of bank loans to the monetary tightening. Our experiment provides evidence on the importance of the "credit" channel in Europe, and thus on one possibly important source of asymmetries in the monetary transmission mechanism. We do not find evidence of a significant response of bank loans to the monetary tightening, which occurred during 1992, in any of the four European countries we have considered. However, we find significant differences both across countries and across banks of different dimensions in the factors that allow them to shield the supply of loans from the squeeze in liquidity.

Keywords: Banking; EMU; Monetary Policy Transmission Mechanism (search for similar items in EconPapers)
JEL-codes: E51 E52 G21 (search for similar items in EconPapers)
Date: 1999-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (79)

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2303 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: The Transmission Mechanism of Monetary Policy in Europe: Evidence from Banks’ Balance Sheets (1999)
Working Paper: The Transmission Mechanism of Monetary Policy in Europe: Evidence from Banks' Balance Sheets (1999)
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:cpr:ceprdp:2303

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=2303

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().