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Interacting demand and supply conditions in European bank lending

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  • Heshmati, Almas
  • Lindstrom, Ossi

Abstract

This paper investigates credit channel of monetary policy by accounting for simultaneous interaction of banks' and firms' credit conditions and their adjustment costs, which are neglected in the previous studies. Based on the European data we find that these conditions are interacting, although their adjustment costs differ across banks, firm size, countries, and over time. The results suggest that a common European monetary policy should then deal with uncertainty over credit market conditions and firms' and banks' country-specific and size-dependent reactions. It should also monitor large firms' exploitation of banks' credit rationing as it can have great impacts on the smaller firms' lending and financial stability conditions.

Suggested Citation

  • Heshmati, Almas & Lindstrom, Ossi, 2005. "Interacting demand and supply conditions in European bank lending," Discussion Papers 11859, MTT Agrifood Research Finland.
    • Handle: RePEc:ags:mttfdp:11859
    DOI: 10.22004/ag.econ.11859
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    Demand and Price Analysis;

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