The impact of monetary policy and banks' balance sheets: Some international evidence

Philippe Bacchetta, Fernando Ballabriga

Research output: Indexed journal article Articlepeer-review

8 Citations (Scopus)

Abstract

There has been extensive empirical research on the role of credit markets in the transmission of US monetary policy, but the evidence for other countries is scarce. This paper compares the US experience with a set of 13 European countries by examining monetary VARs including banks' balance sheets in the spirit of Bernanke and Blinder (1992). It is shown that the VAR methodology provides plausible results for interpreting interest rate shocks as monetary policy shocks in most countries. The evolution of bank lending after a monetary contraction is then analysed. For most countries, it is shown that bank loans decline more than money in the medium run. In the short run, however, loans are sticky and react less than money. Also, loans and output responses to an increase in interest rate tend to be more synchronized than those of money and output. This evidence is similar to the US and is consistent with the broad credit channel of monetary policy.

Original languageEnglish
Pages (from-to)15-26
Number of pages12
JournalApplied Financial Economics
Volume10
Issue number1
DOIs
Publication statusPublished - 2000
Externally publishedYes

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