Monetary Policy and Balance Sheets

Igan, Deniz; Kabundi, Alain; Simone, Francisco d Nadal De; Tamirisa, Natalia

doi:10.5089/9781484343500.001

Cited by 8 publications

(6 citation statements)

References 23 publications

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“…Indeed, for parsimony it would be probably best to refer to a single balance sheet channel, operating for non-bank corporations, banks, as well as households. 6 This is what, for example, Igan et al (2013) implicitly do in their empirical study on the relationship between monetary policy and balance sheets in general. That monetary policy works through its impact on the health of banks is also basis for a so-called I theory of money (Brunnermeier and Sannikov, 2016).…”

Section: Introductionmentioning

confidence: 88%

The Role of Bank Balance Sheets in Monetary Policy Transmission: Evidence from Poland

Kapuściński

2016

Eastern European Economics

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This study investigates whether the effects of monetary policy are amplified through its impact on bank balance sheet strength. Or, in other words, it tests whether the bank lending channel of the monetary transmission mechanism (as reformulated by Disyatat, 2011) works. To this end, panel vector autoregressions with high frequency identification and univariate panel regressions are applied to data for Poland. Counterfactual exercises show that the analysed channel accounts for about 23% of a decrease in lending following a monetary policy impulse. This is another piece of evidence showing that the financial accelerator works in both non-financial and financial sector. In some cases it can make the interplay between monetary and macroprudential policy non-trivial.

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Section: Introductionmentioning

confidence: 88%

The Role of Bank Balance Sheets in Monetary Policy Transmission: Evidence from Poland

Kapuściński

2016

Eastern European Economics

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“…Fourth, unconventional monetary policy was supported by an articulation of the transmission of quantitative easing to the real economy, by what Bernanke called the portfolio balance channel. Recently, Wang (2016) , Igan, Kabundi, De Simone, & Tamirisa (2017) , Gertler and Karadi (2015) , and Gertler and Gilchrist (2018) have described the numerous developments that have articulated the transmission of changes from financial variables to the real economy. These and related studies empirically and theoretically articulate the transmission mechanism from interest rates and financial conditions to the macroeconomy by placing the emphasis on the balance sheets of firms, banks, shadow banks, consumers and the Fed.…”

Section: Modeling Unconventional Monetary Policymentioning

confidence: 99%

Modeling U.S. monetary policy during the global financial crisis and lessons for Covid-19

Bhar

Malliaris

2021

Journal of Policy Modeling

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The paper formulates the modeling of unconventional monetary policy and critically evaluates its effectiveness to address the Global Financial Crisis. We begin with certain principles guiding general scientific modeling and focus on Milton Friedman's 1968 Presidential Address that delineates the strengths and limitations of monetary policy to pursue certain goals. The modeling of monetary policy with its novelty of quantitative easing to target unusually high unemployment is evaluated by a Markov switching econometric model using monthly data for the period 2002-2015. We conclude by relating the lessons learned from unconventional monetary policy during the Global Financial Crisis to the recent bold initiatives of the Fed to mitigate the economic and financial impact of the Covid-19 pandemic on U.S. households and businesses.

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“…Nelson et al () show that unexpected monetary contractions reduce the asset growth of commercial banks and expand the asset growth of shadow banks—as securitization activity rises, even though the contribution of monetary policy surprises to the overall financial sector asset growth has been small. In the United States, securities' broker and dealers seem to be less responsive to monetary policy than banks, but only money market funds show contrarian responses (Igan, Kabundi, Simone, & Tamirisa, ). However, den Haan and Sterk () notice that monetary tightening actually increases asset holdings of nonbank financial institutions.…”

Section: Introductionmentioning

confidence: 99%

How does monetary policy respond to the dynamics of the shadow banking sector?

et al. 2019

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We investigate the response of the central bank to the change in size of nonbank financial intermediaries. Using quarterly data for the United States over the period 1946:Q1‐2016Q4, we find that when faced with an increase in the asset growth of the securities' brokers and dealers and the shadow banking sector, the monetary authority reacts by raising the short‐term nominal interest rate. This response is stronger in the case of sharp variation in the size of the balance sheet of nonbank financial intermediaries. From a policy perspective, our study suggests that an extended version of the original Taylor rule—embedding both price stability and financial stability concerns—provides a good characterization of the monetary policy reaction function.

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Monetary Policy and Balance Sheets

Abstract: The views expressed are those of the author(s) and do not necessarily represent those of the funder, ERSA or the author's affiliated institution(s). ERSA shall not be liable to any person for inaccurate information or opinions contained herein.

Cited by 8 publications

References 23 publications

The Role of Bank Balance Sheets in Monetary Policy Transmission: Evidence from Poland

The Role of Bank Balance Sheets in Monetary Policy Transmission: Evidence from Poland

Modeling U.S. monetary policy during the global financial crisis and lessons for Covid-19

How does monetary policy respond to the dynamics of the shadow banking sector?

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