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How Does the Strength of Monetary Policy Transmission Depend on Real Economic Activity?

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Abstract

We study the relationship between the strength of the bank credit channel (BCC) of monetary policy and real GDP growth in the United States using quarterly commercial bank level data between 1986 and 2008. We find that the BCC was significantly stronger during periods of low economic growth. Monetary policy is more effective through this channel in spurring economic activity during periods of low growth, rather than in cooling the economy when growth is high. Furthermore, we find that the BCC operated through a broader range of loan categories and banks than previously documented, underscoring this channel?s economic relevance.

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  • Horacio Sapriza & Judit Temesvary, 2019. "How Does the Strength of Monetary Policy Transmission Depend on Real Economic Activity?," Finance and Economics Discussion Series 2019-023, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2019-23
    DOI: 10.17016/FEDS.2019.023
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    Cited by:

    1. Sapriza, Horacio & Temesvary, Judit, 2020. "Asymmetries in the bank lending channel of monetary policy in the United States," Economics Letters, Elsevier, vol. 189(C).
    2. Naiborhu, Elis Deriantino, 2020. "The lending channel of monetary policy in Indonesia," Journal of Asian Economics, Elsevier, vol. 67(C).

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    More about this item

    Keywords

    Bank balance sheet; Bank lending channel; GDP growth; Monetary policy transmission;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G2 - Financial Economics - - Financial Institutions and Services

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