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Monetary expansion and bank credit: A lack of spark

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  • Orlowski, Lucjan T.

Abstract

This study shows that the recent expansionary monetary policy pursued by the U.S. Federal Reserve has deactivated the credit channel of policy transmission. We develop a model of changes in the monetary base as a function of changes in excess reserves, vault cash, bank credit, as well as domestic and foreign security investments. We employ ordinary least squares regression optimized for impact lags, as well as generalized linear model with a logarithmic link function in the empirical tests for a sample period 1999–2014. We verify robustness of the obtained results with vector auto-regression estimations and impulse response functions. The tests provide consistent evidence that an increase in the monetary base has been associated with higher excess reserves, an increase in security investments, and a contraction of bank credit.

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  • Orlowski, Lucjan T., 2015. "Monetary expansion and bank credit: A lack of spark," Journal of Policy Modeling, Elsevier, vol. 37(3), pages 510-520.
    • Handle: RePEc:eee:jpolmo:v:37:y:2015:i:3:p:510-520
    DOI: 10.1016/j.jpolmod.2015.03.013
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    Cited by:

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    2. T. Gerasimos S. & V. Erotokritos & Т. Герасимос С. & В. Эротокритос, 2017. "Предварительный поведенческий подход в таргетированию реальных доходов // A Tentative Behavioral Approach to Real Income Targeting," Review of Business and Economics Studies // Review of Business and Economics Studies, Финансовый Университет // Financial University, vol. 5(1), pages 17-31.
    3. Orlowski, Lucjan T., 2020. "Capital markets integration and economic growth in the European Union," Journal of Policy Modeling, Elsevier, vol. 42(4), pages 893-902.
    4. Wang, Ling, 2016. "Unconventional monetary policy and aggregate bank lending: Does financial structure matter?," Journal of Policy Modeling, Elsevier, vol. 38(6), pages 1060-1077.
    5. Orlowski, Lucjan T., 2016. "Co-movements of non-Euro EU currencies with the Euro," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 376-383.
    6. Babecká Kucharčuková, Oxana & Claeys, Peter & Vašíček, Bořek, 2016. "Spillover of the ECB's monetary policy outside the euro area: How different is conventional from unconventional policy?," Journal of Policy Modeling, Elsevier, vol. 38(2), pages 199-225.
    7. Christophe Faugere, 2024. "Velocity of Money and Productivity Growth: Explaining the 2% Inflation Target in the U.S. (1959–2007)," IJFS, MDPI, vol. 12(1), pages 1-34, February.
    8. Xiong, Wanting & Wang, Yougui, 2022. "A reformulation of the bank lending channel under multiple prudential regulations," Economic Modelling, Elsevier, vol. 114(C).
    9. Mosler, Warren & Silipo, Damiano B., 2017. "Maximizing price stability in a monetary economy," Journal of Policy Modeling, Elsevier, vol. 39(2), pages 272-289.

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