The Bank Lending Channel and Monetary Policy Rules for European Banks: Further Extensions

The B.E. Journal of Macroeconomics, January 2015

36 Pages Posted: 2 Aug 2012 Last revised: 31 Aug 2016

See all articles by Nicholas Apergis

Nicholas Apergis

University of Piraeus; University of Derby

Stephen M. Miller

University of Nevada, Las Vegas - Department of Economics; University of Connecticut - Department of Economics

Effrosyni Alevizopoulou

University of Piraeus

Date Written: August 1, 2012

Abstract

The monetary authorities affect the macroeconomic activity through various channels of influence. This paper examines the bank lending channel, which considers how central bank actions affect deposits, loan supply, and real spending. The monetary authorities influence deposits and loan supplies through its main indicator of policy, the real short-term interest rate. This paper employs the endogenously determined target interest rate emanating from the central bank’s monetary policy rule to examine the operation of the bank lending channel. Furthermore, it examines whether different bank-specific characteristics affect how European banks react to monetary shocks. That is, do sounder banks react more to the monetary policy rule than less-sound banks. In addition, inflation and output expectations alter the central bank’s decision for its target interest rate, which, in turn, affect the banking system’s deposits and loan supply. Robustness tests, using additional control variables, (i.e., the growth rate of consumption, the ratio loans to total deposits, and the growth rate of total deposits) support the previous results.

Keywords: Monetary policy rules, bank lending channel, European banks, GMM methodology

JEL Classification: G21, E52, C33

Suggested Citation

Apergis, Nicholas and Miller, Stephen M. and Alevizopoulou, Effrosyni, The Bank Lending Channel and Monetary Policy Rules for European Banks: Further Extensions (August 1, 2012). The B.E. Journal of Macroeconomics, January 2015. Available at SSRN: https://ssrn.com/abstract=2121819 or http://dx.doi.org/10.2139/ssrn.2121819

Nicholas Apergis

University of Piraeus ( email )

Karaoli and Dimitriou 80
80 KARAOLI & DIMITRIOU STREET
Piraeus, Attiki 18534
Greece

University of Derby ( email )

Kedleston Road
Derby, Derbyshire DE22 1GB
United Kingdom

Stephen M. Miller (Contact Author)

University of Nevada, Las Vegas - Department of Economics ( email )

4505 S. Maryland Parkway
Box 456005
Las Vegas, NV 89154
United States
702-895-3776 (Phone)
702-895-1354 (Fax)

HOME PAGE: http://faculty.unlv.edu/smiller/

University of Connecticut - Department of Economics

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States

Effrosyni Alevizopoulou

University of Piraeus ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

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