The Bank Lending Channel: A FAVAR Analysis

Chetan Dave, Scott J. Dressler, Lei Zhang

Research output: Contribution to journalArticle

Abstract

We examine the bank lending channel (BLC) of monetary transmission in a factor-augmented vector autoregression (FAVAR). A FAVAR exploits large numbers of macro-economic indicators and allows us to consider an alternative identification of monetary shocks and analyze the lending response of banks at the aggregate and individual levels. We find that the existence of the BLC is more prevalent than previously thought using aggregated lending data, while the lending response of individual banks are driven more by specific innovations than monetary shocks. Nonetheless, the average individual bank response to a monetary shock is consistent with the existence of a BLC.

Original languageEnglish (US)
Pages (from-to)1705-1720
Number of pages16
JournalJournal of Money, Credit and Banking
Volume45
Issue number8
DOIs
StatePublished - Dec 2013

Keywords

  • Bank lending channel
  • FAVAR
  • Monetary policy

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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