Banking structure and the bank lending channel of monetary policy transmission: Evidence from panel data methods

Patrick Mumbi Chileshe

doi:10.3934/qfe.2018.2.497

Abstract

This study examines comprehensively the bank-lending channel of monetary policy for Zambia using a bank-level panel data covering the period Q1 2005 to Q4 2016. Specifically, the study investigates the effects of monetary policy changes on loan supply by commercial as well as the effect of bank-specific factors on response of loan supply to monetary policy shocks. In addition, the study investigates whether the level of bank competition does affect the bank-lending channel. Using a dynamic panel data approaches developed by Arellano-Bond (1991), the results indicate that a bank-lending channel exists in Zambia. In particular, the results show that loan supply is negatively correlated with policy rate implying that following monetary policy tightening loan supply shrinks. Further, the results indicate that size, liquidity and bank-competiveness have effects on credit supply while capitalization has no effect. Specifically, the results show that bank size has negative effect on credit supply while liquidity and market power were found to enhance credit supply. Most importantly, the results showed that bank-specific factors and bank-competiveness is responsible for the asymmetrical response of banks to monetary policy. Specifically, the results showed that larger banks, banks with more market power, well-capitalized banks and liquid banks respond less to monetary policy tightening.

Highlights

In the aftermath of the global financial crisis, monetary policy has come to include financial system stability to its traditional objectives of price stability and supporting full employment
Results presented in table 8 below, show that in all the estimations the Arellano and Bond tests indicate that the first order statistic (AR1) is significant while the second order statistic (AR2) is not significant, which is expected if the model error terms are serially uncorrelated in levels
The study attempted to examine the response of bank loans to monetary policy changes

Summary

Introduction

In the aftermath of the global financial crisis, monetary policy has come to include financial system stability to its traditional objectives of price stability and supporting full employment. To achieve these objectives it is important for policy makers to have clear understanding of the mechanisms through which their actions affect real variables as well as the factors that influence these channels. This is more so important for developing countries, such as Zambia, where monetary policy is still considered ineffective (Tahir, 2012; Mishra, P., Montiel, P., and Spilimbergo, A., 2010)

Objectives

Methods

Results

Conclusion