Essays on the credit channel of monetary transmission

Thesis

This thesis is a collection of three essays with contributions to the empirical literature on banking and the lending channel of monetary policy. The first essay on monetary policy identification addresses the endogeneity of the monetary policy measure employed in most bank level studies of the lending channel. It shows how an identified, exogenous measure of policy evokes different lending dynamics in U.S. commercial banks compared to the standard endogenous measure of monetary policy. The second essay empirically assesses the impact of financial deregulation on the lending channel in the U.S. In particular, it analyses how the gradual phasing out of deposit rate ceilings commonly known as Regulation Q significantly altered bank level frictions as well as the transmission of monetary policy to individual bank lending. While the first two essays consider U.S. bank level data, the third essay analyses individual bank level lending responses in the euro area. Its contribution lies in the construction of a range of exogenous and unanticipated monetary policy shocks as well as in the introduction of a financial conditions index into standard lending regressions. It finds that the lending responses of individual banks to monetary policy do not support the existence of a separate lending channel in the euro area. Further, equilibrium lending responses to policy as measured by a range of policy shocks is non-linear in financial conditions. Specifically, financial conditions as measured by the relative performance of a broad index of euro area banking stocks to the overall euro area stock market reverse the impact of monetary policy on lending.

Authors: Koch, C

• Publication date: 2011
• DOI: 10.5287/ora-9rw1dpekp
• Type of award: DPhil
• Level of award: Doctoral
• Awarding institution: University of Oxford
• Language: English
• Keywords: deregulation; policy identification; financial intermediation; economics; finance; money and banking
• Subjects: Economics