Monetary Policy Transmission Channels Research Articles

Efectos asimétricos de cambios en la tasa de interés sobre empresas del sector manufacturero colombiano

En este artículo se pone a prueba la existencia del canal de transmisión de la política monetaria, a través del balance general, para la economía colombiana, específicamente en el sector manufacturero. Para ello, siguiendo de cerca los lineamientos teóricos al respecto, se buscan diferentes respuestas ante el choque de política, dependiendo del tamaño de las empresas en muestra. Los datos utilizados se obtuvieron a partir de los balances generales de las empresas que reportaron ante la Superintendencia de Sociedades para el periodo 2002-2013. Los resultados aportan evidencia sobre la existencia del canal de las hojas de balance dentro del sector. Además, de acuerdo con lo esperado teóricamente, se observa que la inversión de las empresas pequeñas tiene una mayor sensibilidad ante los choques de política monetaria, lo cual se debe, posiblemente, a que estas empresas enfrentan mayores costos informacionales.

Channels of monetary policy transmission in Vietnam

Since the economic reforms launched in 1986, the Vietnamese economy has registered impressive economic growth. While foreign investment is providing much needed capital, through the conduct of monetary policy, the State Bank of Vietnam (SBV), which is an integral part of the government of Vietnam, is also playing an important role in nurturing the economic growth. The aim of this paper is to evaluate the success of the SBV policies. Monetary policy actions affect all sectors of real economies with a significant lag. Without a good understanding of the transmission mechanism, monetary policy actions may not achieve the desired outcomes. Using quarterly data from 1995 to 2010, this paper focuses on monetary policy transmission mechanisms in Vietnam. Specifically, we consider the dynamic response of the Vietnamese economy to interest rate, exchange rate and foreign shocks. The estimated results based on structural vector autoregressive (SVAR) methodology suggest that monetary shocks tend to have a strong influence on Vietnam’s output. We find that Vietnam’s monetary policy is relatively more susceptible to foreign shocks.

How transparent about its inflation target should a central bank be?

Using an agent-based model, this paper revisits the merits for a central bank of announcing its inflation target. The model preserves the main transmission channels of monetary policy used in stochastic dynamic general equilibrium models– namely the consumption and the expectation channels, while allowing for agents’ heterogeneity in both expectations and behavior. We find that, in a rather stable environment such as the Great Moderation period, announcing the target allows for the emergence of a loop between credibility and success: if the target is credible, inflation expectations remain anchored at the target, which helps stabilize inflation, and, in turn, reinforces the central bank’s credibility. We then tune the degree of heterogeneity in agents’ behavior and the individual learning process to introduce inflationary pressures, accompanied or not by uncertainty affecting the real transmission channel of monetary policy. Even if learning and heterogeneity would a priori lead to thinking favorably about transparency, we show that this virtuous circle is not robust, as transparency may expose the central bank to a risk of credibility loss. In this case, we discuss the potential benefits from partial announcements.

Transmission Mechanism of Monetary Policy: Case Study of Interest Rate Channel in India

In India, prior to 1991, the tightly controlled interest rates caused impediments in the functioning of the interest rate channel of monetary policy transmission while after 1991, the RBI undertook various measures to strengthen the market-determination of interest rates. This paper has examined the evolution of the interest channel in India across the period 1985 to 2014 firstly by studying the interest rate pass-through using the Correlation matrix and the OLS technique and secondly, by studying the transmission of policy rates to the real economy using the reduced VAR model. The results show that the transmission of interest rates pass-through from policy rates to market interest rates (both - short-term as well as long-term) has strengthened while desired impact of long term market interest rates on industrial production and inflation appears to be weak.

The long-run analysis of monetary policy transmission channels on inflation: a VECM approach

ABSTRACTIn case of small open economy, the conduct of monetary policy has faced obstacles to achieve primary goals of price stability, due to high vulnerability to external shocks and weak policy frameworks. Therefore, this paper aims to analyse the effectiveness of monetary policy transmission channels in restraining inflation in case of Vietnam for 2001-2015. The use of a Vector Error Correction Model yields evidence that credit growth is the key determinant of high inflation. Additionally, the results suggest the interest rate channel has a perverse effect on inflation in the long run, which means that the inflation rate increases with the policy rate. There is also significant short-run causal relationship from credit growth to inflation, and from the policy rate to inflation. However, empirical results fail to confirm the existence of relationship between the exchange rate channel and inflation in both short run and long run.

Assessment of the interest rate and exchange rate channels of monetary policy transmission in Zambia: evidence based on SVAR approach

A structural vector autoregression (SVAR) based on quarterly data over the period 2000Q1–2015Q2 is employed to assess the interest rate and exchange rate channels of monetary policy transmission in Zambia. The model set up to assess the interest rate channel and exchange rate channel is based on the real business cycle new Keynesian monetary economics which assumes nominal and real rigidities. In this framework, the central bank can affect real output and inflation provided it can affect the real interest rate through the control of the nominal interest rate. Therefore, a SVAR in gaps consistent with real business cycle models with an optimal three lags is estimated and results indicate that tight monetary conditions lead to contracting economic activity and falling inflation. Other results show that real depreciation of the Kwacha leads to increasing inflation and decreasing economic activity conflicting the expenditure switching hypothesis. Further, historical decomposition of inflation indicate that the exchange rate has in the past been the most important variable explaining variations in inflation followed by economic activity and lastly interest rate fluctuations.

Financial development and the lending channel of monetary policy transmission: evidence from Thailand

This paper examines the bank lending channel of monetary policy transmission and the effect of financial market development on the bank lending channel in Thailand using bank-level panel data from the quarterly period of 1992Q1-2011Q4. The empirical results show a significant effect of monetary policy via the bank lending channel of monetary policy in Thailand. This effect of monetary policy is higher especially in bank with larger size as well as bank with lower capitalisation. Financial market development, including the banking sector development and the capital market development, mainly weakens the effect of monetary policy through the bank lending channel in Thailand.

The Risk-Taking Channel of Monetary Policy Transmission in the Euro-Area

In this paper, we provide evidence for a risk-taking channel of monetary policy transmission in the euro area that works through the relaxation of lending standards for borrowers. Our dataset covers the period 2003Q1-2016Q2 and includes, in addition to the standard variables for real GDP growth, inflation, and the monetary policy stance, indicators of bank lending standards and bank lending margins. Based on vector autoregressive models with (i) recursive identification and (ii) sign restrictions, we show that banks react aggressively to an expansionary monetary policy shock by lowering their lending standards. The banks' efforts to keep their lending margin stable, however, are not successful as we detect a significant compression. We document these findings for the euro area as a whole and for its individual member states. In particular, banks in the Netherlands, Portugal, Spain, and Ireland lowered their lending standards after expansionary monetary policy shocks. The compression of the lending margin is most pronounced in the five crisis countries (Greece, Ireland, Italy, Portugal, and Spain).

Financial development and the lending channel of monetary policy transmission: evidence from Thailand

This paper examines the bank lending channel of monetary policy transmission and the effect of financial market development on the bank lending channel in Thailand using bank-level panel data from the quarterly period of 1992Q1-2011Q4. The empirical results show a significant effect of monetary policy via the bank lending channel of monetary policy in Thailand. This effect of monetary policy is higher especially in bank with larger size as well as bank with lower capitalisation. Financial market development, including the banking sector development and the capital market development, mainly weakens the effect of monetary policy through the bank lending channel in Thailand.

Shadow Banks and the Risk-Taking Channel of Monetary Policy Transmission in the Euro Area

In this paper, we provide evidence for a risk-taking channel of monetary policy transmission in the euro area that works through an increase in shadow banks' total asset growth and their risk assets ratio. Our dataset covers the period 2000Q1-2018Q3 and includes, in addition to the standard variables for real GDP growth, inflation, and the monetary policy stance, the aforementioned two indicators for the shadow banking sector. Based on vector autoregressive models for the euro area as a whole, we find that a portfolio reallocation effect towards riskier assets is more pronounced for conventional monetary policy shocks. For unconventional monetary policy shocks we partly detect stronger evidence for a general expansion of financial assets. Country-specific as well as sector-specific estimations confirm these findings for most of the euro area countries and all shadow bank types, but also reveal some heterogeneity in the shadow banks' reaction.

Efectos asimétricos de cambios en la tasa de interés sobre empresas del sector manufacturero colombiano

This article tests the existence of the transmission channel of monetary policy, through the balance sheet, for the Colombian economy and, specifically, for the manufacturing sector. To this effect, following closely the theoretical guidelines on the topic, different responses are sought to the policy shock, depending on company sizes in the sample. Data were obtained from the balance sheets of companies that reported to the Superintendency of Companies for the period 2002-2013. The results provide evidence on the existence of the balance sheet channel within the sector. In addition, according to what was theoretically expected, it is observed that the investment of small companies has a greater sensitivity to monetary policy shocks, which is possibly due to the fact that these companies face higher informational costs.

The International Transmission of Monetary Policy

This paper presents the novel results from an internationally coordinated project by the International Banking Research Network (IBRN) on the cross-border transmission of conventional and unconventional monetary policy through banks. Teams from seventeen countries use confidential micro-banking data for the years 2000 through 2015 to explore the international transmission of monetary policies of the U.S., euro area, Japan, and United Kingdom. Two other studies use international data with different degrees of granularity. International spillovers into lending to the private sector do occur, especially for U.S. policies, and bank-specific heterogeneity influences the magnitudes of transmission. The effects are supportive of the international bank lending channel and the portfolio channel of monetary policy transmission. They also show that the frictions that banks face matter; in particular, foreign currency funding and hedging considerations can be a key source of heterogeneity. The forms of bank balance sheet heterogeneity that differentiate spillovers across banks are not uniform across countries. International spillovers into lending can be large for some banks, even while the average international spillovers of policies into nonbank lending generally are not large.

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

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.

The impact of low interest rates on the debt of polish listed companies

Central bank decisions have an impact on the whole economy. Increasing or lowering interest rates as part of a specific policy determines not only changes in macroeconomic aggregates or decisions of financial entities, such as banks, but also has a significant impact on business decisions. Low interest rates, which have been maintained for several years, encourage reflection on the impact of interest rates on the financing structure of companies. The main objective of the research is to verify the relations between monetary policy, in particular low interest rates, and the level of indebtedness of Polish listed companies. The analysis showed that the level of total interest-bearing liabilities for the selected sample of companies remains in a clear upward trend, and interest rates – in a downward trend, excluding the increases in 2008 and 2012. The Pearson correlation for the variables in question should be considered strong, especially in the case of the relationship between long-term interest-bearing liabilities and interest rates. Considering the above, it should be noted that interest rates influence the level of indebtedness of companies, bearing in mind that this is a transmission channel of monetary policy, which operates with a time lag.

Assessment of the interest rate and exchange rate channels of monetary policy transmission in Zambia: evidence based on SVAR approach

Assessment of the interest rate and exchange rate channels of monetary policy transmission in Zambia: evidence based on SVAR approach

How Does Unconventional Monetary Policy Influence the Economy in Japan?

This paper investigates the transmission mechanism of unconventional monetary policies by estimating a time-varying parameter structural vector auto-regression (TVP-VAR) model using Japanese monthly data beginning with the implementation of quantitative easing in 2001. The results of the empirical study can be summarized in four points. First, the accumulated impulse responses of stock prices and exchange rates to a positive monetary policy shock are significant increases and significant depreciation, respectively, in the early days of all unconventional monetary policy periods. Second, a monetary policy shock does not increase bank lending for all unconventional monetary policies. Third, the relationship between an increase in stock prices and the depreciation of exchange rates and increase in GDP has changed since the beginning of Abenomics. Fourth, the accumulated impulse responses of the inflation rate to a positive monetary policy shock became a significant increase during and after the comprehensive monetary easing in October 2010 due to the clarification of the policy duration, and the responses become remarkable after inflation targeting was introduced in January 2013. The first and second results imply that the main transmission channel of unconventional monetary policy in Japan is stock prices and the exchange rate.

THE BROAD CREDIT AND BANK CAPITAL CHANNELS OF MONETARY POLICY TRANSMISSION IN THE CORE AND PERIPHERAL EURO AREA

The goal of the paper is to identify and estimate transmission of monetary policy impulses through the broad credit and bank capital monetary policy transmission channels in the “core” and “peripheral” countries of the euro area. We employ the Euro Area Banking Lending Survey to identify the channels. Following identification, we employ the data in a panel vector autoregression model (PVAR) to investigate the pass-through of the standard and nonstandard monetary policy impulses to the gross domestic product (GDP), inflation, and volume of loans. The results imply that channels are interrelated and the broad credit channel is relatively stronger than the bank capital channel, while the relative importance of the bank capital channel is higher in peripheral than core euro area countries.

The credit channel of monetary policy transmission: issues of quantitative measurement

The credit channel of monetary policy transmission: issues of quantitative measurement

MONETARY POLICY TRANSMISSION IN A MACROECONOMIC AGENT-BASED MODEL

In this paper we explore the variety of monetary policy transmission channels in an agent-based macroeconomic model. We identify eight transmission channels and present a model based on [Caiani et al., J. Econ. Dyn. Contr. 69 (2016) 375–480], extended with an interbank market. We then analyze model simulation results of interest rate shocks in terms of GDP and inflation for four of the transmission channels. We find these effects to be small, in line with the view that monetary policy is a weak tool to control inflation.

The effectiveness of exchange rate channel of monetary policy transmission mechanism in Sri Lanka

This study examines the effectiveness of the exchange rate channel in the transmission mechanism of monetary policy in Sri Lanka during the period from 1978 to 2015. A negative relationship between the two variables is accepted in theoretical insights on the topic. An increase in interest rate leads to appreciation of domestic currency against other foreign currencies. If the empirical situation is different to theoretical explanations, decision makers would not be able to make proper decisions to achieve macroeconomic targets in the economy. Monetary policy is conducted to achieve economic and price stability, and its policy shocks transforms to the economy through various transmission channels. A developing country like Sri Lanka usually prefers to depreciate local currency in order to increase export earnings and to reduce import expenditure to gain a balance of trade. Expansionary monetary policy tends to result in currency depreciation, thus increasing net exports. Higher economic growth can be achieved with domestic currency depreciation through increasing exports. In an inflationary situation, contractionary monetary policy can reduce aggregate demand with domestic currency appreciation. If there is no negative relationship between interest rate and exchange rate, the exchange rate transmission channel of monetary policy does not support the achievement of monetary policy co-objectives. The study uses the variables nominal exchange rate, Treasury bill rate, net exports and total external debt. Co-integration and Vector Error Correction tests are employed for the analysis due to the non-stationary of all the variables used in the study, and the results prove the negative relationship between exchange rate and interest rate as expected in the long run. Estimated value of the interest rate elasticity of exchange rate is -0.178, which proves that exchange rate channel is efficient in the Sri Lankan context. According to short run dynamics, 5% of the error in exchange rate is corrected annually.