IDEAS home Printed from https://ideas.repec.org/a/eee/jpolmo/v37y2015i3p510-520.html
   My bibliography  Save this article

Monetary expansion and bank credit: A lack of spark

Author

Listed:
  • 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.

Suggested Citation

  • 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
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0161893815000411
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jpolmod.2015.03.013?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Peter L. Rousseau & Paul Wachtel, 2011. "What Is Happening To The Impact Of Financial Deepening On Economic Growth?," Economic Inquiry, Western Economic Association International, vol. 49(1), pages 276-288, January.
    2. Agénor, Pierre-Richard & Aynaoui, Karim El, 2010. "Excess liquidity, bank pricing rules, and monetary policy," Journal of Banking & Finance, Elsevier, vol. 34(5), pages 923-933, May.
    3. Lucjan T. Orlowski, 2008. "Stages of the Ongoing Global Financial Crisis: Is There a Wandering Asset-Price Bubble?," CASE Network Studies and Analyses 0372, CASE-Center for Social and Economic Research.
    4. Cúrdia, Vasco & Woodford, Michael, 2011. "The central-bank balance sheet as an instrument of monetarypolicy," Journal of Monetary Economics, Elsevier, vol. 58(1), pages 54-79, January.
    5. Orlowski, Lucjan T., 2008. "Stages of the 2007/2008 Global Financial Crisis Is There a Wandering Asset-Price Bubble?," Economics Discussion Papers 2008-43, Kiel Institute for the World Economy (IfW Kiel).
    6. Daniel L. Thornton, 2014. "QE: is there a portfolio balance effect?," Review, Federal Reserve Bank of St. Louis, vol. 96(1), pages 55-72.
    7. Lars E.O. Svensson, 2016. "Inflation Targeting and "Leaning Against the Wind"," Israel Economic Review, Bank of Israel, vol. 13(1), pages 91-99.
    8. Joseph Gagnon & Matthew Raskin & Julie Remache & Brian Sack, 2011. "The Financial Market Effects of the Federal Reserve's Large-Scale Asset Purchases," International Journal of Central Banking, International Journal of Central Banking, vol. 7(1), pages 3-43, March.
    9. Orlowski, Lucjan T., 2012. "Financial crisis and extreme market risks: Evidence from Europe," Review of Financial Economics, Elsevier, vol. 21(3), pages 120-130.
    10. Finn E. Kydland & Edward C. Prescott, 1990. "Business cycles: real facts and a monetary myth," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 14(Spr), pages 3-18.
    11. Michael Woodford, 2012. "Methods of policy accommodation at the interest-rate lower bound," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 185-288.
    12. Brett W. Fawley & Christopher J. Neely, 2013. "Four stories of quantitative easing," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 51-88.
    13. Orlowski, Lucjan T., 2008. "Stages of the Ongoing Global Financial Crisis: Is There a Wandering Asset Bubble?," IWH Discussion Papers 11/2008, Halle Institute for Economic Research (IWH).
    14. Ben S. Bernanke, 2010. "Opening remarks: the economic outlook and monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 1-16.
    15. Ben S. Bernanke, 2012. "Opening remarks: monetary policy since the onset of the crisis," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 1-22.
    16. William R. White, 2012. "Ultra easy monetary policy and the law of unintended consequences," Globalization Institute Working Papers 126, Federal Reserve Bank of Dallas.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lucjan T. Orlowski, 2021. "The 2020 Pandemic: Economic repercussions and policy responses," Review of Financial Economics, John Wiley & Sons, vol. 39(1), pages 20-26, January.
    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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Orlowski, Lucjan T., 2015. "From pit to electronic trading: Impact on price volatility of U.S. Treasury futures," Review of Financial Economics, Elsevier, vol. 25(C), pages 3-9.
    2. Thornton, Daniel L., 2017. "Effectiveness of QE: An assessment of event-study evidence," Journal of Macroeconomics, Elsevier, vol. 52(C), pages 56-74.
    3. Gabrisch, Hubert & Orlowski, Lucjan T. & Pusch, Toralf, 2012. "Sovereign default Risk in the Euro-Periphery and the Euro-Candidate Countries," MPRA Paper 41265, University Library of Munich, Germany.
    4. Lawrence Kryzanowski & Jie Zhang & Rui Zhong, 2021. "Currency hedging and quantitative easing: Evidence from global bond markets," International Review of Finance, International Review of Finance Ltd., vol. 21(2), pages 555-597, June.
    5. Abu S. Amin & Lucjan T. Orlowski, 2014. "Returns, Volatilities, and Correlations Across Mature, Regional, and Frontier Markets: Evidence from South Asia," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(3), pages 5-27, May.
    6. Talani, Leila Simona, 2014. "The Political Economy of Italy in the EMU: What Went Wrong?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 1(2), pages 133-149.
    7. Valentin Jouvanceau, 2019. "New Evidence on the Effects of Quantitative Easing," Working Papers 1912, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    8. Gabrisch, Hubert & Orlowski, Lucjan T., 2010. "The Extreme Risk Problem for Monetary Policies of the Euro-Candidates," IWH Discussion Papers 12/2010, Halle Institute for Economic Research (IWH).
    9. Neely, Christopher J., 2015. "Unconventional monetary policy had large international effects," Journal of Banking & Finance, Elsevier, vol. 52(C), pages 101-111.
    10. Saroj Bhattarai & Christopher J. Neely, 2022. "An Analysis of the Literature on International Unconventional Monetary Policy," Journal of Economic Literature, American Economic Association, vol. 60(2), pages 527-597, June.
    11. Guidolin, Massimo & Orlov, Alexei G. & Pedio, Manuela, 2017. "The impact of monetary policy on corporate bonds under regime shifts," Journal of Banking & Finance, Elsevier, vol. 80(C), pages 176-202.
    12. Titelman Kardonsky, Daniel & Pérez Caldentey, Esteban & Pineda Salazar, Ramón, 2009. "The bigness of smallness: the financial crisis, its contagion mechanisms and its effects in Latin America," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    13. Rosa, Carlo, 2014. "The high-frequency response of energy prices to U.S. monetary policy: Understanding the empirical evidence," Energy Economics, Elsevier, vol. 45(C), pages 295-303.
    14. christiaan Pattipeilohy, 2016. "A comparative analysis of developments in central bank balance sheet composition," BIS Working Papers 559, Bank for International Settlements.
    15. Lucjan T. Orlowski, 2012. "Financial crisis and extreme market risks: Evidence from Europe," Review of Financial Economics, John Wiley & Sons, vol. 21(3), pages 120-130, September.
    16. Di Carlo, Anastasia, 2010. "The Private Equity market in Europe. Rise of a new cycle or tail of the recession?," EIF Working Paper Series 2010/03, European Investment Fund (EIF).
    17. Solís Baltodano, María José, 2016. "The Catalan health budget rationing problem," Working Papers 2072/290741, Universitat Rovira i Virgili, Department of Economics.
    18. Katleho Daniel Makatjane & Edward Kagiso Molefe & Roscoe Bertrum van Wyk, 2018. "The Analysis of the 2008 US Financial Crisis: An Intervention Approach," Journal of Economics and Behavioral Studies, AMH International, vol. 10(1), pages 59-68.
    19. Meri Boshkoska & Spiro Lazaroski, 2018. "Leading Factors Of The Global Financial Crisis – The Us Evidence," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 5, pages 4-13, October.
    20. Leila Simona TALANI, 2014. "The Political Economy of Italy in the EMU: What Went Wrong?," Journal of Economics and Political Economy, KSP Journals, vol. 1(2), pages 133-149, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jpolmo:v:37:y:2015:i:3:p:510-520. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505735 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.