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The bank liquidity creation channel of monetary policy transmission in a multiple-instrument environment

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  • Van Dan Dang

Abstract

The study investigates the impact of monetary policy on bank liquidity creation, a much broader concept than bank lending. Using the annual financial data of Vietnamese commercial banks from 2008 to 2018, we show that an expansionary (contractionary) monetary policy tends to increase (decrease) bank liquidity creation. Our further analysis through monetary policy indicators ranging from lending rates to primary policy instruments, including policy rates and open market operations, provides strong evidence favouring the bank liquidity creation channel. Slightly differently, we do not have much confidence in the case of the foreign exchange reserves. Besides, we also confirm the existence of the bank lending channel, which differs from the bank liquidity creation channel in terms of the magnitude of transmission, from the perspective of a multiple monetary-policy-instrument environment.

Suggested Citation

  • Van Dan Dang, 2022. "The bank liquidity creation channel of monetary policy transmission in a multiple-instrument environment," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 15(1), pages 58-77.
    • Handle: RePEc:ids:ijmefi:v:15:y:2022:i:1:p:58-77
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    Cited by:

    1. Hummaira Jabeen, 2022. "Monetary Policy Shock Transmission in Emerging Markets," Journal of Policy Research (JPR), Research Foundation for Humanity (RFH), vol. 8(4), pages 379-390, December.

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