Finance and Economics Discussion Series (FEDS)

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April 2019

How does the strength of monetary policy transmission depend on real economic activity?

Horacio Sapriza and Judit Temesvary

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.

Accessible materials (.zip)

Keywords: Bank balance sheet, Bank lending channel, GDP growth, Monetary policy transmission

DOI: https://doi.org/10.17016/FEDS.2019.023

PDF: Full Paper

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Last Update: January 09, 2020