Heterogeneous Bank Lending Responses to Monetary Policy: New Evidence from a Real-Time Identification

47 Pages Posted: 12 Feb 2016

See all articles by John C. Bluedorn

John C. Bluedorn

International Monetary Fund (IMF) - Research Department

C. Bowdler

University of Oxford

Christoffer Koch

Federal Reserve Bank of Dallas

Date Written: October 25, 2015

Abstract

We present new evidence on how heterogeneity in banks interacts with monetary policy changes to impact bank lending, at both the bank and U.S. state levels. We use a new policy measure identified from narratives on FOMC intentions and real-time economic forecasts. This policy measure eliminates some of the movements in the actual federal funds rate that are endogenous to expected economic conditions. We find much stronger dynamic effects, and greater heterogeneity, in U.S. bank lending responses to the new monetary policy measure compared to the standard measure based on realized federal funds rate changes. Our findings suggest that studies using realized monetary policy changes confound monetary policy’s effects with those of changes in expected macrofundamentals. In fact, estimates from identified monetary policy changes lead to a reversal of U.S. states’ ranking by credit’s sensitivity to policy. We also extend Romer and Romer (2004)’s identification scheme, and expand the time and balance sheet coverage of the U.S. banking sample.

Keywords: Monetary Transmission; Lending Channel; Monetary Policy Identification; Banking

JEL Classification: E44; E50; G21

Suggested Citation

Bluedorn, John C. and Bowdler, Christopher and Koch, Christoffer, Heterogeneous Bank Lending Responses to Monetary Policy: New Evidence from a Real-Time Identification (October 25, 2015). Available at SSRN: https://ssrn.com/abstract=2709818 or http://dx.doi.org/10.2139/ssrn.2709818

John C. Bluedorn

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Christopher Bowdler

University of Oxford ( email )

Oxford
United Kingdom

Christoffer Koch (Contact Author)

Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX Texas 75265-5906
United States

HOME PAGE: http://www.dallasfed.org

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