How Does the Strength of Monetary Policy Transmission Depend on Real Economic Activity?

43 Pages Posted: 11 Apr 2019 Last revised: 12 Jun 2019

See all articles by Horacio Sapriza

Horacio Sapriza

Board of Governors of the Federal Reserve System

Judit Temesvary

Board of Governors of the Federal Reserve System

Date Written: 2019-04-08

Abstract

We study the relationship between the strength of the bank credit channel (BCC) of monetary policy and real GDP growth in the United States using quarterly commercial bank level data between 1986 and 2008. We find that the BCC was significantly stronger during periods of low economic growth. Monetary policy is more effective through this channel in spurring economic activity during periods of low growth, rather than in cooling the economy when growth is high. Furthermore, we find that the BCC operated through a broader range of loan categories and banks than previously documented, underscoring this channel's economic relevance.

Keywords: Bank balance sheet, Bank lending channel, GDP growth, Monetary policy transmission

JEL Classification: E3, E5, G2

Suggested Citation

Sapriza, Horacio and Temesvary, Judit, How Does the Strength of Monetary Policy Transmission Depend on Real Economic Activity? (2019-04-08). FEDS Working Paper No. 2019-023. Available at SSRN: https://ssrn.com/abstract=3369646 or http://dx.doi.org/10.17016/FEDS.2019.023

Horacio Sapriza (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Judit Temesvary

Board of Governors of the Federal Reserve System ( email )

1801 K Street
Washington, DC 20006
United States
202-452-3759 (Phone)

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