The impact of monetary policy on bank balance sheets

doi:10.1016/0167-2231(95)00032-U

Carnegie-Rochester Conference Series on Public Policy

Volume 42, June 1995, Pages 151-195

https://doi.org/10.1016/0167-2231(95)00032-U Get rights and content

Abstract

This paper uses disaggregated data on bank balance sheets to provide a test of the lending view of monetary policy transmission. We argue that if the lending view is correct, one should expect the loan and security portfolios of large and small banks to respond differentially to a contraction in monetary policy. We first develop this point with a theoretical model; we then test to see if the model's predictions are borne out in the data. Overall, the empirical results are supportive of the lending view.

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^☆: This paper could not have been written without the very generous assistance of the Federal Reserve Bank of Chicago, particularly Nancy Andrews, Elijah Brewer, Charles Evans, Kenneth Kuttner, and Peter Schneider. We also thank Kip King and John Leusner for research assistance, and Maureen O'Donnell for help in preparing the manuscript. Finally, we are grateful for the comments and suggestions of Marvin Goodfriend, Glenn Hubbard, Peter Klenow, Allan Meltzer, Julio Rotemberg, and Mike Woodford. This research was supported by the National Science Foundation and by the International Financial Services Research Center at M.I.T.

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The impact of monetary policy on bank balance sheets☆

Abstract

Journal of Financial Economics

Journal of Economic Theory

Journal of Financial Economics

Journal of Banking and Finance

Journal of Economic Theory

Credit, Money, and Aggregate Demand

American Economic Review

The Federal Funds Rate and the Channels of Monetary Transmission

American Economic Review

The Credit Crunch

Brookings Papers on Economic Activity

Financial Intermediaries and a Theory of Monetary Control

Yale Economic Essays

The Place of Financial Intermediaries in the Transmission of Monetary Policy

American Economic Review

Money, Debt, and Economic Activity

Journal of Political Economy

Money and Credit in the Transmission Process

The Effects of Monetary Policy Shocks: Evidence from the Flow of Funds

Bank Runs, Deposit Insurance and Liquidity

Journal of Political Economy

Economic Activity and Short-Term Credit Markets: An Analysis of Prices and Quantities

Brookings Papers on Economic Activity

Risk Management: Coordinating Corporate Investment and Financing Policies

Journal of Finance

Incentive-compatible Debt Contracts I: The One Period Problem

Review of Economic Studies

The Cyclical Behavior of Short Term Business Lending: Implications for Financial Propagation Mechanisms

The Role of Credit Market Imperfections in the Monetary Transmission Mechanism: Arguments and Evidence

Scandinavian Journal of Economics

Monetary Policy, Business Cycles and the Behavior of Small Manufacturing Firms

Quarterly Journal of Economics