The Bank Lending Channel of Monetary Policy: Identification and Estimation Using Portuguese Micro Bank Data

59 Pages Posted: 17 Dec 2002

Date Written: December 2001

Abstract

This paper investigates the existence of the bank-lending channel in the transmission of monetary policy using Portuguese micro bank data. In contrast to the conventional approach, which addresses the identification issue by resorting to reduced form equations for bank credit with variables in differences, we directly estimate loan-supply schedules with variables in levels, thereby exploiting recent results on cointegration for panel data. We conclude that there is evidence of the existence of a bank-lending channel, and that the importance of the bank lending-channel is larger for less capitalised banks.

Keywords: Monetary policy transmission mechanism, bank lending channel, identification, nonstationary panel data, cointegration

JEL Classification: C33, E44, E52, G21

Suggested Citation

Alcoforado Farinha, Maria Luísa and Robalo Marques, Carlos Manuel, The Bank Lending Channel of Monetary Policy: Identification and Estimation Using Portuguese Micro Bank Data (December 2001). ECB Working Paper No. 102. Available at SSRN: https://ssrn.com/abstract=356641

Maria Luísa Alcoforado Farinha (Contact Author)

Bank of Portugal ( email )

Av. Almirante Reis, 71
1150 Lisbon
Portugal
351-21-3128350 (Phone)

Carlos Manuel Robalo Marques

Bank of Portugal ( email )

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

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