The transmission mechanism of monetary policy in Japan: Evidence from banks' balance sheets |
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| Affiliation: | 1. Bank for International Settlements, Centralbahnplatz 2, CH-4002 Basel, Switzerland;2. Federal Reserve Board, Division of International Finance, 20th Street and Constitution Avenue NW, Washington, DC 20551, United States;3. University of Amsterdam, Netherlands;4. C.E.P.R., United Kingdom;1. School of Business, Management and Economics, University of Sussex, Jubilee Building, Brighton, BN1 9SL, United Kingdom;2. Nottingham Business School, Nottingham Trent University, Newton Building, Nottingham, NG1 4BU, United Kingdom;1. Bank of Finland Institute for Economies in Transition (BOFIT), Snellmaninaukio, PO Box 160, FI-00101 Helsinki, Finland;2. EM Strasbourg Business School, University of Strasbourg, 61 avenue de la Forêt Noire, 67000 Strasbourg, France;3. Institute of Economic Studies, Charles University in Prague, Czech Republic |
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| Abstract: | We examine how banks' responses to monetary policy vary according to their balance sheet using Japanese bank data from 1975 to 1999. We find that the effect of monetary policy on lending is stronger for banks that are smaller, less liquid, and more abundant with capital. The effects of bank balance sheet on monetary transmission are different by bank types, policy stances and borrowers' industries. Our results imply that a lending channel of monetary transmission exists, that the effect of expansionary monetary policy is attenuated if banks' capital is scarce, and that the effect of monetary policy on the allocation of funds depends on banks' balance sheets. J. Japanese Int. Economies 20 (3) (2006) 380–405. |
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