Trade credit, bank lending and monetary policy transmission

This paper investigates the role of trade credit in the transmission of monetary policy. Most models of the transmission mechanism allow firms to access only financial markets or bank lending according to some net worth criterion. In our model we consider external finance from trade credit as an additional source of funding for firms that cannot obtain credit from banks. We predict that when monetary policy tightens there will be a reduction in bank lending relative to trade credit. This is confirmed with an empirical investigation of 16,000 UK manufacturing firms.     

Informal Credit Markets and the Transmission of Monetary Policy: Evidence from South Korea

This paper is an empirical investigation of the transmission of monetary policy in South Korea. It combines modern mainstream macroeconomics with aspects of a developing economy with financial dualism through a simple IS-LM type model that explicitly incorporates an informal credit market. Vector autoregression analysis, with both semistructural and structural identifications, confirms the importance of a credit variable as a policy tool. The results show direct credit allocation by the central bank had a significant impact on output, prices, and the interest rate in the informal sector. Previous theoretical and empirical findings of "stagflationary" effects of monetary policy are refuted.     

Monetary policy through the ‘credit-cost channel’: Italy and Germany pre- and post-EMU

We present an empirical analysis of the ‘Credit-Cost Channel’ (CCC) of monetary policy transmission. This channel combines bank credit supply and interest rates on loans as a cost to firms. The thrust of the CCC is that it makes both aggregate demand and aggregate supply dependent on monetary policy. As a consequence (1) credit market conditions (e.g. risk spreads) are important sources and indicators of macroeconomic shocks, (2) the real effects of monetary policy are larger and persistent. We have applied the Cointegrated Vector Autoregression (CVAR) econometric methodology to Italy and Germany in the ‘hard’ EMS period and in the European Monetary Union (EMU) period. The short-run and long-run effects of the CCC are detectable for both countries in both periods. Simulation of the estimated model also confirms that inflation-targeting by way of inter-bank rate control stabilizes inflation through structural shifts of the stochastic equilibrium paths of both inflation and the output.     

Incomplete interest rate pass-through under credit and labor market frictions

By introducing search and matching frictions in both the labor and the credit markets into a cash in advance New Keynesian DSGE model, we provide a novel explanation of the incomplete pass-through from policy rates to loan rates. We show that this phenomenon is ineradicable if banks possess some power in the bargaining over the loan rate of interest, if the cost of posting job vacancies is positive and if firms and banks sustain costs when searching for lines of credit and when posting credit vacancies, respectively. We also show that the presence of credit market frictions moderates the reactions of employment and wages to a monetary shock. Finally, we confirm the finding that pass-through incompleteness has limited short-term impacts on the transmission of monetary policy shocks to output and inflation.     

中国货币政策的区域效应研究——来自信用观点的解释

本文以货币政策的"信用观点"为理论前提,运用VAR模型对我国货币政策的区域效应进行了实证研究.分析结果表明,在我国直接融资还不发达、东、中、西部地区的银行体系特征还存在较大差异的现实背景下,中央银行统一的货币政策通过各地区的银行体系进行传导时,将通过影响各地区银行系统提供信贷的能力而影响各地区私人部门的信用可得性,从而导致各地区的经济发展水平体现出较大的差异,最终表现为货币政策的区域效应.为此中央银行必须实施差别化的货币政策和信贷政策以促进区域经济的协调发展.     

货币政策对金融生态的影响机理及实证检验——基于上市商业银行面板数据的分析

传统的货币理论忽视了货币政策对银行风险承担及金融生态的影响,文章从商业银行的微观视角出发研究了货币政策对金融生态的影响机理。理论层面,金融生态与货币政策制度供给、传导机制和有效性相互关联,货币政策则通过资产价格或估值机制、收入及现金流机制、追求收益机制、杠杆调整机制、道德风险机制和风险转移机制影响商业银行的风险承担;实证层面,构建了货币政策影响商业银行信贷投放和风险承担的数理模型,选取国有和股份制两类共12家上市商业银行2008-2013年的面板数据进行固定效应模型实证检验。结果表明,宽松货币政策导致商业银行的信贷投放规模增加、风险承担意愿增强,有利于优化金融生态,反之则反是;国有商业银行对货币政策变化更敏感,而股份制商业银行对金融生态更敏感。因此,在我国宏观经济管理中,需要货币政策与宏观审慎政策相互协调配合。     

A policy model to analyze macroprudential regulations and monetary policy

We construct a small‐open‐economy, new Keynesian dynamic stochastic general‐equilibrium model with real financial linkages to analyze the effects of financial shocks and macroprudential policies on the Canadian economy. The model incorporates rich interactions between the balance sheets of households, firms and banks, long‐term household and business debt, macroprudential policy instruments and nominal and real rigidities and is calibrated to match dynamics in Canadian macroeconomic and financial data. We study the transmission of monetary policy and financial and real shocks in the model economy and analyze the effectiveness of various policies in simultaneously achieving macroeconomic and financial stability. We find that, in terms of reducing household debt, more targeted tools such as loan‐to‐value regulations are the most effective and least costly, followed by bank capital regulations and monetary policy, respectively.     

How important is the credit channel in the transmission of monetary policy in Mexico?

This article empirically examines the importance of the credit channel of monetary policy in Mexico for the period 2004–2013. We estimate a vector autoregressive (VAR) model to analyse the effects of a monetary policy shock on real output, and we also use a threshold VAR model to investigate asymmetric effects of contractionary and expansionary policies. The empirical results suggest that a contractionary monetary policy results in a fall in the supply of loans together with an increase in the spread between the lending and deposit rate. To the extent that some borrowers are dependent on bank loans for credit, the reduced supply of loans amplifies the effects of monetary policy on output associated with the traditional interest rate channel. Our results also suggest that the importance of the credit channel is larger for contractionary shocks than for expansionary shocks.     

Long-run scarring effects of meltdowns in a small-scale nonlinear quadratic model

We build a small-scale nonlinear quadratic (NLQ) model in which credit feedback and regime switches in the output gap affect the adjustment path of the economy towards a steady state. The central bank solves a finite-horizon decision problem where the policy rate also can be zero or negative. We estimate this model by nonlinear seemingly unrelated regression method (NLSUR) and using the parameters to explore policy scenarios. The latter projects long-run dynamics after a large demand contraction leading to scarring effects on the economy. We point out three main results. First, while scars are dominant when the central bank follows a standard Taylor rule, unconventional monetary policy (UMP) – such as Quantitative Easing – mitigates the output decline in both the short and the long run. Second, a zero natural interest rate curtails the central bank’s ability to adjust the economy and mitigate scars. Third, financial constraints leave the deepest scars even if UMP is active.     

Unexpected loan losses and bank capital in an estimated DSGE model of the euro area

We present a stylized DSGE model in which banks face unexpected losses in their loan portfolios and are subject to capital regulation. The framework is used to explore the importance of the interaction between macroeconomic conditions, credit default and bank capitalization for the transmission of macroeconomic shocks. We fit the model to euro area data. Impulse response analysis shows that the aforementioned interaction substantially magnifies the responsiveness of the economy to demand side and monetary disturbances. The amplification is especially strong with respect to government spending shocks. The model is further capable of replicating two financial market characteristics that are documented in the empirical literature, i.e. the pro-cyclicality of bank profitability and the counter-cyclical response of firm default rates and credit spreads to monetary policy shocks.     

The Credit Channel at Work: Lessons from the Financial Crisis in Korea

We demonstrate that the credit channel of transmission of monetary/financial shocks appears to have aggravated Korea's economic crisis. We use micro-data gathered at the individual bank level to identify this channel of transmission. Our major findings are as follows: i) consistent with banks' autonomous retrenchment in loan supply, monetary tightening broadens the spread between marginal bank lending rates and corporate commercial paper rates; ii) credit limits on overdrafts – arguably a proxy identifying shifts in loan supply – react negatively to the monetary squeeze; iii) large negative capital shocks induce banks to disproportionately slow-down both lending and deposit taking and to disproportionately raise their lending rates. Our findings lend unequivocal support to the hypothesis that banks' autonomous contraction restricted the availability of credit and magnified the increase in its cost. In turn, this compounded the Korean crisis by aggravating liquidity constraints for the vast majority of agents who rely only on bank credit as an external source of funds.     

信用视角下的货币政策有效性研究

信用是市场经济的基石,信用制度的完善与否关系到国家各项宏观调控政策能否真正得到贯彻落实。本文以我国的信用现状为出发点,分析了信用制度的缺失对中央银行在通过实施货币政策进行宏观调控时货币政策工具、货币政策中介目标、货币政策传导机制等方面的影响,认为信用缺失是造成我国货币政策效果不明显的关键因素。     

What drives the short-run costs of fiscal consolidation? Evidence from OECD countries

We investigate how the short-term effects of fiscal consolidation on output and employment vary with the state of the business cycle, monetary policy, public debt, the current account, and private credit. By examining the response of a large number of variables, we are also able to shed light on the transmission channels of fiscal policy. Our main finding is that short-term output multipliers are below unity, even in states in which multipliers are expected to be larger (eg when the output gap is negative or monetary policy tight). Key offsetting factors that reduce the size of multipliers and explain differences across states are the extent to which the external sector improves and monetary policy eases.     

金融危机、货币政策与信贷供给*——基于公司层面银行信贷数据的经验研究

不同的银行特征会对金融危机和货币政策传导的银行信贷渠道产生异质性影响。本文运用2001-2015年公司层面银行信贷数据实证检验了我国货币政策传导的银行信贷渠道,随后进一步研究金融危机对不同特征银行信贷供给的影响差异。经验研究发现：我国货币政策银行信贷渠道主要通过非国有控股银行传导,并引起不同资产负债表特征银行信贷供给的异质性反应。银行规模越大、流动性越强、资本充足率越高,银行信贷供给对货币政策越不敏感。金融危机期间,银行信贷渠道的传导效率显著降低,高资本充足水平的银行和国有控股银行受金融危机的冲击较小,并且宽松的货币政策对国有控股银行信贷供给调控的效率更高。     

A two-pillar DSGE monetary policy model for the euro area

The current financial crisis has revived the interest for monitoring both monetary and credit developments. Over the past two decades, consistent with the adoption of inflation targeting strategies by a growing number of central banks and the development of New Keynesian models for which monetary aggregates are largely irrelevant, money and credit have been progressively neglected in the conduct of monetary policy. A striking exception has been the Eurosystem, which has implemented a strategy known as the “two-pillar monetary policy strategy” giving a prominent role for money. In this paper, we develop a small optimizing model based on Ireland (2004), estimated on euro area data and featuring this two-pillar strategy. We evaluate an ECB-style cross-checking policy rule in a DSGE model with real balance effects of money. We find some evidence that indeed money plays a non-trivial role in explaining the euro area business cycle. This provides a rationale for the central bank to factor in monetary developments but also raises some issues regarding the reliability of M3 as an appropriate monetary indicator. We find some evidence that the ECB has systematically reacted to a filtered measure of money growth but weak evidence it has reacted more aggressively during excess money growth periods.     

Monetary policy and credit cards: Evidence from a small open economy

This paper uses a unique monthly data set that covers the overall credit card usage in a small-open economy, Turkey, to investigate a possible credit channel of monetary policy transmission through credit cards. A reduced-form vector autoregression analysis is employed, where the forecast error variance decompositions are calculated for three-year windows over the period 2002–2009. It is shown that, during the recent financial crisis that has started in 2007, the monetary policy of Turkey has shifted toward focusing on output volatility and interest rate smoothing through setting short-term interest rates, while the inflation rate has been mostly affected by exchange rate movements and inflation inertia. Credit card usage has an increasing effect on inflation rates through time, requiring more policy emphasis on the credit channel through credit cards. When the effects of the credit view and the money view are compared, the former seems to be more effective on the real side of the economy, independent of the level of inflation.     

The role of banks in the Czech monetary policy transmission mechanism

With this work, I aim to enrich the knowledge about the monetary policy transmission mechanism in the Czech Republic with empirical evidence on the impact of monetary policy on bank lending. Using a panel of quarterly time series for Czech commercial banks for the period 1996–2001, I study the overall effect of monetary policy changes on the growth rate of loans and the characteristics of the supply of loans. The characterization of the credit market's supply side allows us to make inferences on the operativeness of the credit channel (the bank lending channel and the broad credit channel) of the monetary transmission mechanism. I find that changes in monetary policy alter the growth rate of loans, with considerably stronger magnitude in the period 1999–2001 than in the period 1996–1998. From the analysis intended to capture the characteristics of the supply of loans, I conclude that the lending channel was operative in the period 1996–1998: I find cross‐sectional differences in the lending reactions to monetary policy shocks due to the degree of capitalization and to liquidity. For the subsequent period 1999–2001, the results also show distributional effects of monetary policy due to bank size and its bank's proportion of classified loans. In the context of steadily decreasing interest rates, this can bolster the supposition of financial frictions between borrowers and lenders and hence, that of an operative broad credit channel.     

A QUEST FOR UNFETTERED CREDIT: HOW MONETARY POLICY DRIVES CREDIT RISK TRANSFER OF STRUCTURED FINANCE PRODUCTS

This study examines the effects of monetary policy contractions on bank loans to households and firms and instruments in three different credit risk transfer (CRT) capital markets over two separate time periods (1995–2006 and 2007–2015). The findings show that in both periods, banks decrease business lending but increase lending to consumers through a combination of mortgage, auto, credit card, and student loans from more liquidity produced by consumer‐related CRT activity. Additional results reveal relative CRT movements toward securitized mortgages from bank mortgage debt over both periods and toward securitized and insured business loans from bank business debt in the latter period, which suggest vulnerabilities among interconnected credit markets. (JEL E44, E51, G21, G23)     

The Monetary Transmission Mechanism: Evidence from Eight Economies in Transition

Abstract

We examine in this paper the importance of banks’ behavior in the transmission of the monetary policy to the real economy. Monthly data from eight economies in transition that recently became members of the European Union and the techniques of cointegration and Error Correction models are used, in order to investigate the relationship between intermediation margin spread (IMS, official lending rate minus deposit rate) and industrial production. Given the low development of corporate bond market and the dependence of non-financial agents on banking credits, we find that in many countries the IMS is an important leading indicator of industrial production. However, in countries characterized by credit access constraints (Estonia and Latvia) evidence for the traditional money channel is found. Evidence for both money and credit channels is found in Poland and Hungary. These results imply that a common monetary policy implemented by the European Central Bank may be transmitted in different ways across the new members of the enlarged European Union with different effects on real output in each country.     

Even more on monetary policy in a small open economy

It is well known that in a small open economy with full capital mobility and a fixed exchange rate, monetary policy is ineffective in influencing real output (e.g. the works of Fleming [Int. Monetary Fund Staff Pap. 9 (1962) 369.] and Mundell [Can. J. Econ. Polit. Sci. 29 (1963) 475.]). However, Wu [Int. Rev. Econ. Finance 8 (1999) 223.] finds that when the credit channel is added to this model, monetary policy can have real effects under a fixed exchange rate system. This conclusion hinges on the assumption that open market operations have no effect on foreign exchange reserves of the central bank when evaluating how a change in monetary policy affects the loan market. This assumption is incorrect because under a fixed exchange rate regime, the quantity of foreign reserves becomes endogenous in the model. It is shown that when this assumption is relaxed, monetary policy is still ineffective in influencing output under a fixed exchange regime, even with an operative credit channel.