The Bank Lending Channel of Monetary Policy Transmission in South Africa

Ekaterina Pirozhkova () and Nicola Viegi
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Ekaterina Pirozhkova: Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa

No 202443, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper studies the bank lending channel of monetary policy transmission in South Africa in a context where the bank-loan level data, typically used for this type of analysis, are unavailable. Supply-side changes in credit provision are measured with data on composition of homeloan supply by banks versus nonbanks. High-frequency surprises in forward rate agreements are used to instrument for exogenous shifts in monetary policy in a proxy-SVAR model. The bank lending channel is found to be operative, as banks reduce the supply of homeloans following monetary tightening with a negative effect on housing market. The effectiveness of the deposits channel is shown: banks widen the deposit spread after monetary tightening, and the volume of deposits shrinks. As retail deposits provide a unique stable source of funding for banks, the deposits channel underlies the operativeness of the bank lending channel in South Africa consistent with theory.

Keywords: monetary policy transmission; bank lending channel; credit channel; nonbank financial institutions; housing finance (search for similar items in EconPapers)
JEL-codes: E52 G21 G23 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2024-09
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mon
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Working Paper: The bank lending channel of monetary policy transmission in South Africa (2024)
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