Trusting the Bankers: A New Look at the Credit Channel of Monetary Policy

61 Pages Posted: 26 Jul 2010

See all articles by Matteo Ciccarelli

Matteo Ciccarelli

European Central Bank (ECB)

Angela Maddaloni

European Central Bank (ECB)

José-Luis Peydró

Imperial College London; Centre for Economic Policy Research (CEPR); Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

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Date Written: July 14, 2010

Abstract

Any empirical analysis of the credit channel faces a key identification challenge: changes in credit supply and demand are difficult to disentangle. To address this issue, we use the detailed answers from the US and the confidential and unique Euro area bank lending surveys. Embedding this information within a standard VAR model, we find that: (1) the credit channel is active through the balance-sheets of households, firms and banks; (2) the credit channel amplifies the impact of a monetary policy shock on GDP and inflation; (3) for business loans, the impact through the (supply) bank lending channel is higher than through the demand and balance-sheet channels. For household loans the demand channel is the strongest; (4) during the crisis, credit supply restrictions to firms in the Euro area and tighter standards for mortgage loans in the US contributed significantly to the reduction in GDP.

Keywords: Non-financial borrower balance-sheet channel, Bank lending channel, Credit channel, Credit crunch, Lending standards, Monetary policy

JEL Classification: E32, E44, E5, G01, G21

Suggested Citation

Ciccarelli, Matteo and Maddaloni, Angela and Peydro, Jose-Luis, Trusting the Bankers: A New Look at the Credit Channel of Monetary Policy (July 14, 2010). ECB Working Paper No. 1228, Available at SSRN: https://ssrn.com/abstract=1641086

Matteo Ciccarelli (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Angela Maddaloni

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Jose-Luis Peydro

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, Barcelona 08005
Spain
(+34) 93 542 1756 (Phone)
(+34) 93 542 1746 (Fax)

HOME PAGE: http://https://sites.google.com/site/joseluispeydroswebpage/

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