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Banks Exposure to Interest Rate Risk and The Transmission of Monetary Policy

Augustin Landier, David Sraer () and David Thesmar

No 13-438, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We show empirically that banks' exposure to interest rate risk, or income gap, plays a crucial role in monetary policy transmission. In a first step, we show that banks typically retain a large exposure to interest rates that can be predicted with income gap. Secondly, we show that income gap also predicts the sensitivity of bank lending to interest rates. Quantitatively, a 100 basis point increase in the Fed funds rate leads a bank at the 75th percentile of the income gap distribution to increase lending by about 1.6 percentage points annually relative to a bank at the 25th percentile.

New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
Date: 2013-02
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Related works:
Working Paper: Banks' exposure to interest rate risk and the transmission of monetary policy (2016) Downloads
Working Paper: Banks Exposure to Interest Rate Risk and The Transmission of Monetary Policy (2014) Downloads
Working Paper: Banks Exposure to Interest Rate Risk and The Transmission of Monetary Policy (2013) Downloads
Working Paper: Banks' Exposure to Interest Rate Risk and The Transmission of Monetary Policy (2013) Downloads
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