How the credit channel works: Differentiating the bank lending channel and the balance sheet channel

Arbeitspapier

The credit channel of monetary policy transmission operates through changes in lending. To examine this channel, we explore how movements in the real federal funds rate affect bank lending. Using data on individual loans from the Survey of Terms of Bank Lending, we are able to differentiate two ways the credit channel can work: by affecting overall bank lending (the bank lending channel) and by affecting the allocation of loans (the balance sheet channel). We find evidence consistent with the operation of both internal credit channels. During periods of tight monetary policy, banks adjust their stock of loans by reducing the maturity of loan originations and they reallocate their short-term loan supply from small firms to large firms. These results are stronger for large banks than for small banks.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2007-13

Classification and Topics

• Classification: Wirtschaft

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Black, Lamont K. ; Rosen, Richard K.
• Event: Veröffentlichung
• (who): Federal Reserve Bank of Chicago
• (where): Chicago, IL
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/70522