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The main purpose of this paper is to investigate the aggregate data about bank loans which may hide significant information about the monetary transmission mechanism. This study, by disaggregating bank loans data and using the relevant interest rates in Sweden, investigates the behaviour of banks after a monetary policy tightening. By using an unrestricted VAR model and impulse response analysis, our results show that a shock on the policy rate affects the main components of the banks' loan portfolios differently. Initially, banks do not reduce lending to firms and households and they present a sluggish reaction concerning the relevant interest rates. On the contrary, they reduce lending to mortgage credit institutions significantly since real estate lending can be considered as a risky long-term investment. Moreover mortgage credit institutions reduce lending for housing purposes to non-bank public. This reduction is mainly driven by flexible rate loans and loans secured on tenant owned apartments. Consequently, theses actions have a significant effect on real economic activity, by amplifying the initial shock from the tightening monetary policy. The latter result provides evidence of the bank lending channel in Sweden working via mortgage lending and could be very important for policy makers.

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Banks’ lending behavior and monetary policy: evidence from Sweden

Papadamou

Siriopoulos

2010

Rev Quant Finan Acc

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Cited by 20 publications

References 53 publications

Banks’ lending behavior and monetary policy: evidence from Sweden

Banks’ lending behavior and monetary policy: evidence from Sweden

New estimates of time-varying currency betas: A trivariate BEKK approach

Dynamic market risk and portfolio choice: Evidence from Indian stock market

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