Monetary Policy Pass-through, Ownership and Crisis: How Robust is the Indian Evidence?

2021 ◽  
Vol 15 (4) ◽  
pp. 456-483
Author(s):  
Jugnu Ansari ◽  
Saibal Ghosh
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Bank Lending ◽  
Loan Pricing ◽  
Lending Channel ◽  
Private Banks ◽  
Monetary Policy Shock ◽  
Pass Through ◽  
The Interest Rate ◽  
The Impact

Employing disaggregated data for 2001–2016, this study investigates the lending and loan pricing behaviour of state-owned and domestic private banks in response to monetary policy. Three major findings emerge. First, although both the interest rate and the bank lending channels are relevant for monetary pass-through, there is a trade-off: the impact of the former is much higher than the latter, although it occurs with a significant lag. Second, domestic private banks have a far greater response to a monetary policy shock under the interest rate channel, whereas state-owned banks display a greater response under the bank-lending channel. And finally, state-owned banks cut back lending during periods of crises, although no such response is manifest in domestic private banks. JEL Codes: C23, D4, E43, E52, G21, L10

Inside the Bank Box

2019 ◽  
pp. 368-405
Author(s):  
Leonardo Gambacorta ◽  
Paul Mizen
Keyword(s):  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Adjustment Costs ◽  
Bank Lending ◽  
Bank Capital ◽  
Bank Lending Channel ◽  
Lending Channel ◽  
Pass Through ◽  
The Interest Rate

Central bank policy operates first through financial markets and then through banks as they adjust their interest rates. This chapter discusses the transmission of policy in this first step of the monetary transmission mechanism, known as interest-rate pass-through. Historically, the focus of attention has been the interest-rate channel. We show the origins of this channel via a microfounded model of interest-rate setting by deposit-taking institutions that are Cournot oligopolists facing adjustment costs. We then examine other channels such as the bank lending channel and the bank capital channel and the role of central bank communications, signaling, and forward guidance over future interest rates. Each is shown to influence the setting of current short-term interest rates. The chapter closes with some issues for the future of pass-through in the transmission process.

Real interest rate, income and bank loans: panel evidence from Egypt

2019 ◽  
Vol 12 (2) ◽  
pp. 227-243
Author(s):  
Mohamed Aseel Shokr
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Bank Lending ◽  
Bank Loans ◽  
Bank Lending Channel ◽  
Content Type ◽  
Lending Channel ◽  
Policy Shocks ◽  
Effect Of Monetary Policy ◽  
The Impact

Purpose This paper aims to examine the effectiveness of monetary policy on bank loans in Egypt using generalized method of moments (GMM) model. Also, it investigates the impact of bank level variables, namely, total assets, liquidity, capital and income on bank loans. It develops the equation of loans, which is introduced by Ehrmann et al. (2002) using bank level variables such as income and the interaction between income and interest rate. Design/methodology/approach This paper examines the impact of monetary policy shocks on bank loans in Egypt by applying the GMM technique and panel data from 1996 to 2014. Findings The results reveal that real interest rate has a significant impact on bank loans, which indicates that the bank lending channel is effective in Egypt. Furthermore, the bank level variables, namely, banks’ size, liquidity and income have significant effects on bank loans in Egypt, which sustains the heterogeneous effect of monetary policy on bank loans. Therefore, the Central Bank of Egypt (CBE) can adjust interest rate to influence the bank loans and total demand. Research limitations/implications It does not examine the effect of monetary policy on small and large banks in Egypt. Practical implications The policy implications from this paper indicate that the monetary authority in Egypt should adjust interest rate to stabilize the bank loan supply. By stabilizing the bank loans, the monetary authority is able to stabilize investment, consumption and total demand. Social implications The relevance of bank lending channel indicates that the role of commercial banks is very important in transmitting monetary policy shocks to the real sector. Originality/value It is important for the CBE, banks and people because it shows the effectiveness of bank lending channel and the effect of global financial crisis on the Egyptian economy.

scholarly journals What Role Does the Housing Market Play for the Macroeconomic Transmission Mechanism?

2020 ◽  
Vol 13 (6) ◽  
pp. 112
Author(s):  
Mats Wilhelmsson
Keyword(s):  
Interest Rate ◽  
Housing Market ◽  
Housing Prices ◽  
Bank Lending ◽  
Transmission Mechanism ◽  
Bank Lending Channel ◽  
Lending Channel ◽  
The Interest Rate ◽  
The Impact ◽  
Over Time

The main objective is to answer the question: What role does the housing market play for the transmission mechanism and (in particular) is the impact constant over time? The research question also includes analyzing the importance of the housing market for the transmission mechanism. We estimate an eight-variable structural vector autoregression (SVAR) model of the Swedish economy over the period 1993 and 2018 using quarterly data, covering both the internet bubble in 2000 and the financial crises in 2008. The results indicate that interest rates have both a direct effect on housing prices and an indirect impact through the bank lending channel. Over time, the traditional interest rate channel importance has been stable. On the other hand, the role of the bank lending channel has increased over time. Household debt has increased substantially in Sweden and elsewhere. That means that the interest rate sensitivity in society has increased. Based on the results, it is possible to evaluate and forecast potential house price effects (both direct and indirect) when the interest rate changes.

scholarly journals The Sectoral Impact of Monetary Policy Transmission in India: A Panel VAR Approach

2019 ◽  
Vol 5 (1) ◽  
pp. 63-77
Author(s):  
Taniya Ghosh
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Weak Link ◽  
Bank Lending ◽  
Panel Var ◽  
Informal Credit ◽  
Long Run ◽  
Monetary Policy Shock ◽  
The Impact ◽  
Panel Vector Autoregression

A structural panel vector autoregression (VAR) analysis is done to analyze the impact of monetary policy shock on people associated with various occupations. To understand the efficacy of bank lending channel, it is important to capture the differential occupation-wise effect of interest rate. The article finds that due to a monetary policy shock, the impulse responses capture the movement of loans in theoretically expected direction in most cases. The Granger causality tests successfully establish the long-run relationship between loans and interest rate. Also, the empirical results of good-performing states support the direct link between greater financial penetration and higher economic activity. Monetary policy shock significantly affects the lending behavior in all the sectors, except in agriculture and personal loans sector. The weak link of transmission in these sectors is mainly attributed either to lack of access to formal credit or a preference to informal credit sources over banks.

scholarly journals The impact of Musharakah financing on the monetary policy in the Islamic economy

2018 ◽  
Vol 3 (3/4) ◽  
pp. 139-152
Author(s):  
Hatem Adela
Keyword(s):  
Economic Theory ◽  
Monetary Policy ◽  
Interest Rate ◽  
Economic Activity ◽  
Methodological Framework ◽  
Mathematical Methods ◽  
Content Type ◽  
Return Rates ◽  
The Interest Rate ◽  
The Impact

Purpose This paper aims to contribute to formulating the methodological framework for a paradigm of Islamic economics, using the development of the conventional economics, theoretical and mathematical methods. Design/methodology/approach The study based on the inductive and mathematical methods to contribute to economic theory within the methodological framework for Islamic Economics, by using the return rate of Musharakah rather than the interest rate in influence the economic activity and monetary policy. Findings Via replacement, the concept of the interest rate by the return rates of Musharakah. It concludes that the central bank can control the monetary policy, economic activity and the efficient allocation of resources by using the return rates of Musharakah through the framework of Islamic economy. Practical/implications The study is a contribution to formulate the methodological framework for a paradigm of Islamic economics, where it investigates the impact of return rates of Musharakah on the money market and monetary policy, by the mathematical methods used in the conventional economy. Also, the study illustrates the importance of further studies that examine the methodological framework for Islamic Economics. Originality/value The study aims to contribute to formulating the Islamic economic theory, through the return rate of Musharakah financing instead of the interest rate, and its effectiveness of the monetary policy. As well as reformulating the concepts of the investment function, the present value and the marginal efficiency rate of investment according to the Islamic economy approach.

scholarly journals Monetary Policy Effects on Energy Sector Bubbles

Energies ◽  
2019 ◽  
Vol 12 (3) ◽  
pp. 472
Author(s):  
Petre Caraiani ◽  
Adrian Călin
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Asset Prices ◽  
The United States ◽  
Energy Sector ◽  
Monetary Policy Shocks ◽  
Policy Shocks ◽  
The Difference ◽  
The Interest Rate ◽  
The Impact

We investigate the effects of monetary policy shocks, including unconventional policy measures, on the bubbles of the energy sector, for the case of the United States. We estimate a time-varying Bayesian VAR model that allows for quantifying the impact of monetary policy shocks on asset prices and bubbles. The energy sector is measured through the S&P Energy Index, while bubbles are measured through the difference between asset prices and the corresponding dividends for the energy sector. We find significant differences in the impact of monetary policy shocks for the aggregate economy and for the energy sector. The findings seem sensitive to the interest rate use, i.e., whether one uses the shadow interest rate or the long-term interest rate.

What Do a Million Observations on Banks Say About the Transmission of Monetary Policy?

2000 ◽  
Vol 90 (3) ◽  
pp. 407-428 ◽  
Author(s):  
Anil K Kashyap ◽  
Jeremy C Stein
Keyword(s):  
Monetary Policy ◽  
Bank Lending ◽  
Monetary Transmission ◽  
Bank Lending Channel ◽  
Data Set ◽  
Balance Sheets ◽  
Lending Channel ◽  
The Impact ◽  
Transmission Of Monetary Policy ◽  
Quantitative Importance

We study the monetary-transmission mechanism with a data set that includes quarterly observations of every insured U.S. commercial bank from 1976 to 1993. We find that the impact of monetary policy on lending is stronger for banks with less liquid balance sheets—i.e., banks with lower ratios of securities to assets. Moreover, this pattern is largely attributable to the smaller banks, those in the bottom 95 percent of the size distribution. Our results support the existence of a “bank lending channel” of monetary transmission, though they do not allow us to make precise statements about its quantitative importance. (JEL E44, E52, G32)

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