Search Results (13)

This paper examines the regional dimension of monetary policy transmission through the component of the bank lending channel in Indonesia. Understanding the effectiveness of this transmission channel at a regional level is crucial, given the diverse economic characteristics across Indonesian provinces. We employ panel regression to analyze the panel data consisting of provincial quarterly data from 2010–2023 for 33 provinces in Indonesia. The robustness of the results is further assessed through GMM estimation techniques. We find evidence of the bank lending channel through the use of the policy rate. Our findings are meaningful in the SME and consumer lending channel and are also more profound in Java than in the non-Java region. Further, using GMM estimation, we show that our results are robust. Our study highlights the significant role of regional differences in Indonesia when examining monetary policy effectiveness. Policymakers should therefore consider regional disparities and lending categories to enhance the efficacy of monetary policy interventions. Full article

Foreign direct investment (FDI) is essential for enhancing economic resilience and promoting sustainable development. However, inefficiencies in financial connectivity and capital allocation have hindered the facilitation of FDI. Bank linkages between countries in the global sectors of multinational enterprises (MNEs) offer potential solutions to these challenges. In this paper, we focus on whether sustainable FDI can benefit from consolidating bank linkages, which are measured for each pair of countries in each year as the number of bank pairs in both countries that are connected through cross-border syndicated lending. Using the gravity model, we provide empirical evidence based on cross-border data to support the following conclusions: (1) Bank linkages can sustainably enhance the host country’s attractiveness to FDI through information, external financing, and international financial services channels. (2) This positive effect is pronounced in host countries with lower financial development, weaker institution quality, and higher investment risk while remaining insignificant for OECD countries. (3) Bank linkages exhibit a lagged impact on FDI, but newly established bank linkages are more conducive to inward FDI than those established earlier. In this paper, we offer some policy implications for emerging economies and suggest that emerging economies should continue to deepen their financial openness and strengthen international bank links through various means to attract more inward FDI. Full article

This study delves into the influence of banks’ governance and ownership structures on green lending. To examine this, we utilized the two-step system GMM and PCSE methods on the panel data of Vietnamese commercial banks spanning from 2010 to 2023. The findings suggest that board characteristics, precisely board size, board independence, and gender diversity, play a significant role in encouraging banks to provide green credit. The study highlights the importance of ownership structure in green lending. Banks with a high percentage of government ownership tend to fund more green projects, while foreign counterparts are reluctant to fund green finance. A mechanism test is also conducted to point out that banks’ disclosure of their green loan commitments is an influential channel whereby corporate governance and ownership structure impact green loans. Additionally, this research finds that the issuance of the Green Loan Principles in 2018 can facilitate banks’ governance of sustainable lending. Full article

This study examines causal relationships among various short- and long-term interest rates in the Korean financial market to identify transmission channels. Monthly time series data from January 2015 to February 2024 were used, covering nine interest rates, including call rates, commercial paper (CP) rates, bank lending rates, and Treasury bond yields of different maturities. The study employs a Bayesian network to identify an acyclic causal structure between interest rates alongside a vector error correction model (VECM) to capture long-term equilibrium relationships and short-term dynamics. The findings reconfirm the traditional call rate transmission mechanism, aligning with conventional monetary policy views, demonstrating the call rate’s significant influence on bank lending rates, which affects corporate bond spreads and CP rates. Additionally, it reveals that 10-year Treasury bond yields form an independent interest rate transmission pathway, a finding not previously identified in the literature. These results underscore the need for coordinated monetary and fiscal policies due to the distinct transmission pathways of Treasury yields for sustainable macroeconomic management and growth. Full article

The sustainability-linked discussion has gained international importance, with the banking sector being an essential pillar of the new economy, particularly through channeling financial resources to environmentally friendly economic activities. It is, however, still unclear if ESG is profitable, both for the economy and banks. This paper aims at filling this gap by presenting, from a macroeconomic perspective, the impact of ESG efforts and the banking sector’s contribution to a sustainable economy. Using panel regression models with fixed effects, the study investigates the impact of ESG factors and banking activity on economic growth. The results show a negative relationship between country-level ESG scores and economic growth, both in the short and long run, while increased financial intermediation by the banking sector, used as a proxy of potential green lending activity, does not necessarily enhance economic growth. Through delving into the interplay between the ESG score, economic development, and banking activity, this research could serve as a discussion point for economists, bankers, and policymakers when designing the economic and financial strategies for transitioning to a green economy. Full article

Economic policies aimed at managing economic variables in the short and long term have always been of special importance. These policies seek to reduce economic fluctuations in the short term and increase sustainable economic growth in the long term. One of these policies is monetary policy, which is mainly carried out by central banks worldwide. This paper uses the Keynesian Dynamic Stochastic General Equilibrium (DSGE) model to examine the effects of monetary policy on the real variables of the Iranian economy through the credit channel and the balance sheet channel. The presented model analyzed information about macroeconomic variables in Iran for the period from 1990 to 2020. The obtained results show that with the implementation of restrictive monetary policy in the economy, all productive activities of enterprises decreased, and this led to a decrease in household income, which in turn reduced household savings in the form of bank deposits. Because the most important sources of financing for banks are deposits, the ability of banks to offer loans was reduced. On the other hand, a restrictive monetary shock was associated with a decline in the value of corporate securities. As a result, the amount of received loans by firms was reduced by the value of the assets. This reduced the demand of banks for bank loans, which intensified the effects of the initial shock, along with a reduction in the banks’ ability to provide lending services. Further, the results indicate the relative success of the model in simulating Iran’s macro economy. Full article

The systematicness of banks is an important driver of financial crisis. Overlapping portfolios and assets correlation of banks’ investment are important reasons for systemic risk contagion. The existing systemic risk models are all analyzed from one aspect and cannot reflect the real situation of the banking system. In the present paper, considering the overlapping portfolios and assets correlation, a contagion network model with multi-channel risk is proposed, which is with interbank lending (direct contagion channel), overlapping portfolios (indirect contagion channel), and assets correlation (indirect contagion channel). In addition, the model takes investment risk as an impact factor and learns the operation rules of the banking system to help banks compensate for liquidity through asset depreciation. Based on the proposed model, the effects of assets correlation, assets diversity, assets investment strategy, interbank network structure, and the impact of market density on risk contagion are studied and analyzed quantitatively. The method in this paper can more truly reflect the banking system risk than the existing model. This paper provides a solution for quantitative analysis of systemic risk, which provides powerful tools for macroprudential stress testing and a reference for regulatory authorities to prevent systemic risk. Full article

This study provides an empirical analysis of the two macroprudential instruments, namely the reserve option mechanism and the interest rate corridor, employed by the Central Bank of the Republic of Turkey in the aftermath of the global financial crisis. A nine-variable structural vector autoregressive model for Turkey is estimated with Bayesian techniques utilising data from October 2010 to May 2018. A set of timing, zero and sign restrictions are imposed to identify the reserve requirement and the interest rate shocks through the bank lending channel. The results reveal that the new policy frame is efficient in curbing the volatility in the exchange rates and in improving the current account balance. While the reserve requirements seem to be more effective on the current account and partly on the exchange rate, the interest rate fares better in controlling the price level. Full article

All countries worldwide faced the COVID-19 pandemic and had to take actions to lower the economic shock. Financial authorities play an especially significant role in economics and can help to manage the negative consequences. This article focuses on the European central bank monetary policy and actions taken for COVID-19 risk management. This research aims to identify the significant factors influencing the long-term loans for enterprises’ credit conditions in a forward-looking approach and determine the impact of the spread of COVID-19 pandemic on banking sector credit risk, financial distress, lending growth, and financial soundness indicators. This research is focused on the credit transmission channel and the role of the Pandemic Emergency Purchase Program in different countries of the euro area. To reach the main goal, panel data regression models are used. Our findings showed that the banks’ risk tolerance is a principal factor influencing long-term loan credit standards. We also identified that the spread of the COVID-19 pandemic has a statistically significant negative effect on banking sector credit risk, financial distress, banking sector profitability, and solvency. Furthermore, after analyzing the euro area banking sector, we found that liquidity increased. Hence, it means that banks have enough funds to support sustainable economic growth, but on the other side, commercial banks do not want to take credit risk because of their risk tolerance. Our research findings show the mixed effect of the COVID-19 pandemic on financial stability: while the overall financial distress decreased and banking sector liquidity increased, the profitability and solvency decreased some extent. Full article

The main objective is to answer the question: What role does the housing market play for the transmission mechanism and (in particular) is the impact constant over time? The research question also includes analyzing the importance of the housing market for the transmission mechanism. We estimate an eight-variable structural vector autoregression (SVAR) model of the Swedish economy over the period 1993 and 2018 using quarterly data, covering both the internet bubble in 2000 and the financial crises in 2008. The results indicate that interest rates have both a direct effect on housing prices and an indirect impact through the bank lending channel. Over time, the traditional interest rate channel importance has been stable. On the other hand, the role of the bank lending channel has increased over time. Household debt has increased substantially in Sweden and elsewhere. That means that the interest rate sensitivity in society has increased. Based on the results, it is possible to evaluate and forecast potential house price effects (both direct and indirect) when the interest rate changes. Full article

The European Central Bank (ECB) engaged in an expanded asset purchase programme (APP) from 2014 to 2018 to help achieve their primary objective of price stability. Total assets purchased over this period was over €2.5 trillion and new net purchases ended in December 2018. This paper identifies whether the ECB’s APP in Ireland operated through the portfolio rebalancing channel, the signalling channel or the lending channel. It presents a quantitative descriptive analysis of some key Irish data sets in the 2014–2018 period and uses time-series visualisation and trend analysis to identify trends and correlations. There are a number of preliminary findings. First, much downward pressure on sovereign debt yields and spreads had occurred before the APP began due to previous accommodative monetary policy and the signalling channel. Second, the corporate-sector purchase programme (CSPP) did impact on targeted bonds and may have had spill overs to non-targeted bonds. Third, the APP did not lead to much increased lending to the SME sector. Fourth, while households did engage in traditional portfolio rebalancing, Irish banks did not and were perhaps more motivated to meet their capital requirements and manage their level of reserves. This is a first step towards understanding the transmission channels of ECB policy in Ireland and more work needs to be done to detangle the transmission of the most recent APP from other factors and consider these findings in the context of theoretical models. Such work is important to help inform policy makers on enhancing the transmission mechanism to the Irish economy of the recently launched new ECB asset purchase programme from November 2019. Full article

Given ongoing financial disintermediation and the need for central banks to establish interest rate corridors, commercial banks have increasingly enriched their asset allocation choices, forming an allocation pattern that combines traditional credit assets (loans) and financial assets (interbank and securities investment). Due to the long-standing dual interest rate system in China, the yields of credit assets and financial assets have differed, which means the latter has greater volatility. Using the quarterly panel data of 23 listed commercial banks in China from 2002 to 2017, the empirical results of this paper show that the fluctuation of the return rate of the two types of assets will affect the asset allocation of banks. Specifically, on the one hand, when the price of financial assets falls, which leads to the narrowing of the credit spread between the two types of assets, banks reduce transaction demand to prevent loss and reduce their holdings of financial assets, thus increasing the ratio of their credit assets to financial assets. On the other hand, rising benchmark lending rates leads to the increase in the credit financing cost of demanders, reducing the willingness of demanders to lend, forcing the demander to obtain funds through other channels. This results in the decrease in the ratio of credit assets to financial assets. Furthermore, the financial characteristics of banks also influence the dynamic adjustment range of asset allocation. That is, the lower the reserve ratio and capital adequacy ratio, the smaller the impact of financial asset yield volatility on bank asset allocation. Full article

In this paper, we compare the transmission of a conventional monetary policy shock with that of an unexpected decrease in the term spread, which mirrors quantitative easing. Employing a time-varying vector autoregression with stochastic volatility, our results are two-fold: First, the spread shock works mainly through a boost to consumer wealth growth, while a conventional monetary policy shock affects real output growth via a broad credit/bank lending channel. Second, both shocks exhibit a distinct pattern over our sample period. More specifically, we find small output effects of a conventional monetary policy shock during the period of the global financial crisis and stronger effects in its aftermath. This might imply that when the central bank has left the policy rate unaltered for an extended period of time, a policy surprise might boost output particularly strongly. By contrast, the spread shock has affected output growth most strongly during the period of the global financial crisis and less so thereafter. This might point to diminishing effects of large-scale asset purchase programs. Full article