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The Bank Credit Transmission Channel of Monetary Policy in Australia

Author

Listed:
  • Wensheng Lin
  • Yang Cheng

Abstract

This paper intends to test for the existence of credit channel of monetary policy in Australia using aggregate seasonal data from 1994.1 to 2011.4. Based upon Johansen trace test, two co integrating relationships are found and can be identified respectively as loan demand and supply functions. With the tests for a number of exclusion and exogeneity restrictions, the paper concludes that loan supply is negatively related to interbank cash rate, suggesting the existence of credit channel of monetary policy in Australia. Furthermore, a shortterm dynamic analysis shows RBA plays an important role in equilibrium-correcting in the supply of loan. And inflation rate is also found to be equilibrium-correcting in the long run supply equation.

Suggested Citation

  • Wensheng Lin & Yang Cheng, 2016. "The Bank Credit Transmission Channel of Monetary Policy in Australia," International Journal of Financial Economics, Research Academy of Social Sciences, vol. 5(2), pages 61-65.
    • Handle: RePEc:rss:jnljfe:v5i2p1
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    References listed on IDEAS

    as
    1. G. B. Gorton & Ping He, 2008. "Bank Credit Cycles," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(4), pages 1181-1214.
    2. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-921, September.
    3. Jan Kakes, 2000. "Identifying the mechanism: is there a bank lending channel of monetary transmission in the Netherlands?," Applied Economics Letters, Taylor & Francis Journals, vol. 7(2), pages 63-67.
    4. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
    5. Calza, Alessandro & Sousa, João & Manrique, Marta, 2003. "Aggregate loans to the euro area private sector," Working Paper Series 202, European Central Bank.
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