Abstract
There exist two main channels of the monetary transmission mechanism: the interest rate and the bank lending channel. This paper focuses on the latter, which is based on the central bank’s actions that affect loan supply and real spending. The supply of loans depends on the monetary policy indicator, which, in most studies, is the real short-term interest rate. The question investigated in this paper is how the operation of the bank lending channel changes when this short-term indicator is allowed to be endogenously determined by the target rate the central bank sets through a monetary rule. We examine the effect that a rule has on the bank lending channel in European banking institutions spanning the period 1999–2009. The expectations concerning inflation and output affect the decision of the central bank for the target rate, which, in turn, affect private sector’s expectations —commercial banks— by altering their loan supply.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, 58, 277–297.
Brissimis, S. N., Kamberoglou, N. C. & Simigiannis, G. T. (2001). Is there a bank lending channel of monetary policy in Greece? Evidence from bank level data. European Central Bank, Working Paper Series, Working Paper No. 104.
Clarida, R., Gali, J., & Gertler, M. (1998). Monetary policy rules in practice: Some international evidence. European Economic Review, 42, 1033–1067.
Clarida, R., Gali, J., & Gertler, M. (2000). Monetary policy rules and macroeconomic stability: Evidence and some theory. Quarterly Journal of Economics, 115, 147–180.
Fourcans, A., & Vranceanu, R. (2004). The ECB interest rate rule under the Duisenberg presidency. European Journal of Political Economy, 20, 579–595.
Gambacorta, L. (2005). Inside the bank lending channel. European Economic Review, 49, 1737–1759.
Golodniuk, I. (2006). Evidence on the bank lending channel in Ukraine. Research in International Business and Finance, 20, 180–199.
Greenspan A. (1997). Rules versus discretionary monetary policy. Remarks at the 15th Anniversary Conference of the Center for Economic Policy Research at Stanford University. Stanford, CA.
Haldane, A., & Batini, N. (1999). Forward-looking rules for monetary policy. In J. B. Taylor (Ed.), Monetary policy rules. Chicago: University of Chicago Press.
Hernando, I. and Pages, J. M. (2001). Is there a bank lending channel of monetary policy in Spain?. European Central Bank, Working Paper Series, Working Paper No. 99.
Kashyap, A. K., Stein, J. C., & Wilcox, D. W. (1993). Monetary policy and credit conditions: Evidence from the composition of external finance. American Economic Review, 83, 78–98.
Kishan, R. P., & Opiela, T. P. (2000). Bank size, bank capital and the bank lending channel. Journal of Money, Credit, and Banking, 32, 121–141.
Kozichi, N. (1999). How useful are Taylor rules for monetary policy?. Economic Review, Federal Reserve Bank of Kansas, 5–33.
Meyer, L. H. (2002). Rules and discretion: Remarks at the Owen Graduate School of Management. Nashville: Vanderbilt University.
Oliner, S. D., & Rudenbusch, G. D. (1995). Is there a bank lending channel for monetary policy? Federal Reserve Bank of San Francisco. Economic Review, 2, 1–22.
Orphanides, A. (2003). Historical monetary policy analysis and the Taylor rule. Journal of Monetary Economics, 50, 983–1022.
Peek, J. & Rosengren, E. S. (1995). Bank lending and the transmission of monetary policy. In: J. Peek & E. S. Rosengren (Eds.), Is bank lending important for the transmission of monetary policy?, Federal Reserve Bank of Boston Conference Series, No 39, 47–68.
Taylor, J. B. (1993). Discretion versus policy rules in practice. Carnegie-Rochester Conference Series on Public Policy, 39, 195–214.
Taylor, J. B. (1999). The robustness and efficiency of monetary policy rules as guidelines for interest rate setting by the European central bank. Journal of Monetary Economics, 43, 655–679.
Acknowledgement
The authors wish to thank the participants of the Topics in Macroeconomics session at the 71st Atlantic Economic Association meetings in Athens, March 2011, for their valuable comments and suggestions on an earlier draft of this paper. Needless to say, the usual disclaimer applies.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Apergis, N., Alevizopoulou, E. The Bank Lending Channel and Monetary Policy Rules: Evidence from European Banks. Int Adv Econ Res 18, 1–14 (2012). https://doi.org/10.1007/s11294-011-9328-x
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11294-011-9328-x