Monetary Policy Shocks and Heterogeneous Finance Decisions: A Model of Hidden Effort Choice and Financial Intermediation

Abstract. The paper investigates how monetary policy shocks influence the composition of firms' external finance given that firms are heterogeneous. Heterogeneity stems from differences in the availability of internal funds and in the monitoring costs associated with bank finance. These costs are determined by the intensity of the lending relationship. By using a delegated monitoring approach it is found that bank loans serve as a substitute for internal funds if the lending relationship is sufficiently close. Moreover, banks with strong credit ties to their customers are not only able to protect borrowers from liquidity constraints following a monetary tightening but are even able to extend their business lending.     

Transmission of monetary policy and exchange rate shocks under foreign currency lending

This paper analyses the differences in reaction of domestic and foreign currency lending to monetary and exchange rate shocks, using a panel VAR model estimated for the three biggest Central and Eastern European countries (Poland, the Czech Republic and Hungary). Our results point toward a drop in domestic currency loans and an increase of foreign currency credit in reaction to monetary policy tightening in Poland and Hungary, suggesting that the presence of foreign currency debt weakens the transmission of monetary policy. A currency depreciation shock leads to an initial decline in foreign currency lending, but also in loans denominated in domestic currency as central banks react to a weaker exchange rate by increasing the interest rates. However, after several quarters, credit in foreign currency accelerates, indicating that borrowers start using it to substitute for depressed domestic currency lending.     

INTERNATIONAL CREDIT CHANNEL OF MONETARY POLICY: AN EMPIRICAL NOTE

A longstanding macroeconomic issue is how monetary policy affects the real economy. There are economists placing an emphasis on the role of bank lending in monetary transmission. Their view, called the credit view, is that a monetary tightening shifts the supply schedule of bank loans left, thereby forcing bank‐dependent borrowers to cut back on expenditures. In the literature, the credit view is typically studied in a closed‐economy context. In reality, however, banks make international loans through their overseas branches and subsidiaries. This suggests that the credit view should be studied in an open‐economy context. This paper proposes the international credit view: a monetary‐policy shock originated in one country propagates to another through banks’ reallocation of funds between the two countries. For testing the hypothesis, Australia and New Zealand provide an excellent case to study. This is because Australian‐owned banks dominate the banking market in New Zealand. This paper aims to test the international credit view within a framework of vector auto‐regression models. A significant and robust finding is that the supply schedule of loans shifts left in New Zealand after a monetary tightening in Australia.     

货币政策、地区差异与信贷融资——来自中国上市公司的实证研究

本文采用2004—2007年沪深两市上市公司的季度数据,从地区经济发展水平和政治影响力等角度考察了货币政策对不同地区上市公司银行贷款的影响。实证研究发现货币政策越紧缩,企业获得的信贷融资额越少。货币政策宽松时,企业所属地区经济越发达或政治地位越高,企业获得信贷融资额也越多;相反,货币政策紧缩时,经济发达地区或政治地位高的地区的企业信贷融资额减少更多。     

Is the Lending Channel of Monetary Policy Dominant in Australia?

The transmission process of monetary policy is a longstanding macroeconomic issue. The lending view is that a monetary tightening affects aggregate demand by shifting the supply schedule of bank loans left. The contraction of bank loans does not necessarily mean a shift of the supply schedule. Therefore, testing the lending view requires the identification of the shifts of the demand and supply schedules in the bank loan market. This paper employs an original approach, finding that the lending channel is not dominant in Australia. The paper also examines features of Australian banks' behaviour which make the lending channel less dominant.     

Bank-lending channel and non-financial firms: evidence for Spain

During the 1990s, liquidity was relatively abundant in the European Union and the European central banks mostly developed a relaxed monetary policy. While the bank lending channel view of the monetary policy would have suggested an increase in loans to firms in this context, the demand for bank corporate lending, however, slowed down, suggesting that monetary policy was not effective in this area. This article analyses how the financing behaviour of Spanish firms during 1992–2003 is related to their liquidity holdings and how this relationship may affect the effectiveness of the bank lending channel. The empirical evidence provided suggests that firms holding high liquid assets may replace bank lending by other sources of financing. Hence, higher liquidity holdings allow firms to invest in attractive investment projects in the event of a tightening of monetary conditions.      

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 effect of US stress tests on monetary policy spillovers to emerging markets

This paper explores the transmission of US monetary policy through US banks to emerging market economies (EMEs) and the role that stress tests play in this transmission. Data on US banks’ monthly commercial and industrial loan originations shows that: (a) US bank lending to EMEs was sensitive to domestic monetary policy changes during the zero‐lower bound period. (b) Effects of monetary easing were heterogeneous across banks and depended on banks’ stress test results, a proxy for their capital strength. Only banks that comfortably passed the stress tests issued more loans to EME borrowers. (c) Effects of monetary tightening were more similar across banks. (d) Banks shifted their lending to safer borrowers within EMEs in response to monetary easing, leaving the risk of their overall loan books unchanged. These results support the hypothesis that bank capital affects the transmission of easier monetary policy, including across borders. We conjecture that bank lending to EMEs during the zero‐lower bound period would have been even higher had the United States not introduced stress tests for their banks.     

Monetary Policy, Agency Costs and Output Dynamics

This paper examines the role of financial market imperfections for output reactions to nominal interest rate shocks. Empirical evidence shows a hump-shaped impulse response function of output and suggests that credit supply co-moves with output. A monetary business cycle model with staggered price setting is presented where the firms' outlays for capital and labor must be covered by the sum of net worth of entrepreneurs and loans in the form of debt contracts. These properties are shown to generate a hump-shaped impulse response of output, which takes on the smooth and persistent appearance of the empirical output response when nominal wages are set in a staggered way, too.     

The role of liquidity in monetary policy transmission: Evidence from Indian banks1

The role of bank liquidity in monetary policy transmission has received insufficient attention in the literature. Faced with monetary tightening, banks with more liquidity can sell off securities and protect their loan portfolios. We test this proposition using panel data for Indian banks during 2005–2020. Employing dynamic threshold panel regressions with liquid assets as the threshold variable, we show that bank lending declines with monetary policy tightening in low liquidity regimes, but not in high liquidity regimes. We also find evidence for different portfolio reallocation behaviour by banks in high versus low liquidity regimes in response to monetary policy changes.     

货币紧缩、产权性质与公司现金持有

宏观经济政策如何影响公司微观行为是最近几年比较新的领域。本文运用中国上市公司2001—2011年的年度数据,探讨了货币紧缩政策对公司现金持有的影响以及产权性质对这种影响的作用。本文发现,货币紧缩政策对公司的现金持有具有负向影响,即处于货币政策紧缩阶段,公司的现金持有会显著减少。相比于国有企业,货币紧缩政策对民营企业的现金持有影响更大,民营企业的现金持有在货币紧缩阶段减少得更多。本文进一步分析发现,在货币紧缩阶段,公司当期投资并未出现下降。这说明在货币紧缩阶段,为确保当期投资顺利进行,公司会使用自有现金来补充由于银行信贷减少引起的资金不足。     

The “price puzzle” in the monetary transmission VARs with long-run restrictions

This study addresses the “price puzzle” — a positive response of prices to monetary tightening in VAR models. By using long-run instead of the usual short-run restrictions on the US data including output, prices and interest rate, we find that monetary tightening had a negative effect on prices.     

当前我国货币政策工具选择的依据及运用

2010年我国调整了实施两年多的宽松货币政策,宣布2011年实行稳健的货币政策。使货币政策从宽松转向稳健的最直接原因是目前我国物价上涨加快,资产泡沫化加剧,通胀预期上升。但是,紧缩货币政策工具的力度除了考虑国内物价因素以外,还应考虑到国际因素。当前,外围主要经济体增长率下滑、失业率高企,因而当前甚至今后一段时间内,央行在使用紧缩货币政策工具收紧流动性、防止资产泡沫风险时,应把握好节奏和力度,以防经济硬着陆风险。     

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.     

Securitisation and the bank lending channel

The dramatic increase in securitisation activity experienced in Europe in the years following the introduction of the euro has altered the liquidity, credit and maturity transformation role traditionally performed by banks. We claim that the changing role of credit intermediaries due to securitisation has also modified the effectiveness of the bank lending channel and banks’ ability to grant loans. We use a novel database of securitisation activity and a large sample of European banks and find that the use of securitisation shelters banks’ loan supply from the effects of monetary policy. Securitisation activity has also strengthened banks’ capacity to supply new loans. This capacity, however, depends on business cycle conditions and, notably, on banks’ risks positions. The recent credit crisis is instructive in this respect.     

货币政策对房地产市场冲击效力的动态测度

以货币政策传导渠道为理论依据,通过结构向量自回归(SVAR)模型构造货币政策对房地产市场的作用途径,可测度各种货币政策工具冲击对我国房地产市场供求的相对强度.实证分析结果表明,利率政策的冲击效力明显且持久,是调控房地产市场最有效的货币政策工具;紧缩的信贷政策仅能在短期内抑制房地产市场需求,长期效果欠佳;而货币供给量冲击对房地产市场的影响并不显著.相对于房地产需求,房地产市场供给对各种货币政策工具冲击的响应深度高,但响应速度较慢.     

Credit constraints in Italian industrial districts

Italy is characterized by strong differences both in the productive and in the financial structure. Small and medium firms tend to concentrate in the so called ‘Marshallian industrial district’, whose productive system has been thoroughly studied but whose financial features are partially overlooked. This paper aims at investigating how the location of a firm in an industrial district affects its ability to resort to external finance, mostly bank loans. The econometric analysis on a panel of 1700 firms over the 1989–1995 period shows that firms located inside industrial districts have an advantage in terms of financial relations with the banking system: both the cost of credit and the probability to face financial constraints are lower. Nevertheless, the cyclical pattern of this advantage is not in favour of district firms: following the tightening of monetary policy, increases in interest rates on bank loans are proportionally higher for firms inside the district; furthermore, also the advantage consisting in an easier access to credit market disappears after the 1992–1993 recession.     

Inside the bank lending channel

This paper tests cross-sectional differences in the effectiveness of the bank lending channel. The results, derived from a comprehensive sample of Italian banks, suggest that heterogeneity in the monetary policy pass-through exists. After a monetary tightening the decrease in lending is lower for well-capitalized banks that are perceived as less risky by the market and are better able to raise uninsured deposits. Liquid banks can protect their loan portfolio against monetary tightening simply by drawing down cash and securities. The presence of internal capital markets in bank holding companies also contributes to insulate monetary shocks. Bank size is never relevant.     

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。     

Monetary Policy in Australia: The Conflict between Short-Term and Medium-Term Objectives

This article argues that the recent implementation of monetary policy in Australia has been dominated by the response to a large range of unanticipated shocks. In the process of trying to minimise the adverse effects of such shocks, considerable uncertainty has been created about likely outcomes in the medium term. This makes medium-term objectives harder to achieve. Taking the reduction of inflation as an example of an appropriate medium-term objective, simulations are presented using the Murphy model of the Australian economy. The simulations demonstrate that a tightening of monetary policy will reduce inflation more slowly if private agents believe that the tightening is unlikely to be sustained for long. Under uncertainty, monetary policy will have to be tighter and real GDP significantly lower to achieve a given reduction in inflation. A confingency rule of medium complexity is suggested as one way in which appropriate medium-term objectives might be achieved while allowing some flexibility to react to unexpected outcomes in the short run.