Bank capital channel of monetary policy: panel data evidence for India

Bhatia, Shelja

doi:10.1007/s41775-023-00173-0

Cited by 2 publications

(3 citation statements)

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“…The literature provides limited evidence focusing on the bank capital channel, especially in the South Asian region. (Bhatia, 2023) conducted the most recent study that has delved into uncovering how the monetary policy transmission works using data from 26 banks in India and found evidence supporting the bank capital channel. (Nguyen & Dinh, 2022) suggest that the role of capital in the bank lending channel has been ignored in the literature.…”

Section: Introductionmentioning

confidence: 99%

Deciphering the black-box of monetary policy transmission in South Asia

Mohammad,

Khan

2024

Econ. J. Emerg. Mark.

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Purpose ─ This study aims to identify the role of the bank capital channel by investigating how monetary policy affects bank lending through its influence on bank equity capital, in the transmission of monetary policy.Method ─ The study employs panel vector autoregression (pVAR) to investigate the complex relationship between monetary policy shocks, bank capital, and lending behavior. Results ─ The main findings are as follows: 1) The study finds evidence of both the bank lending and bank capital channels in South Asia. The analysis reveals a Granger causality between changes in bank capital position and policy rate adjustments, indicating a dynamic interplay between these variables. 2) The findings suggest, although direct effects of capital position changes on bank lending appear negligible, a nuanced examination uncovers the moderating influence of capital position changes on the impact of policy rate fluctuations on lending behavior. 3) The study suggests that healthier banking systems weaken the bank lending channel in South Asia.Implications/Significance ─ The study is significant because it sheds light on the mechanism involved in the interplay between monetary policy, bank capital, and lending, providing valuable insights for policymakers and future research directions.

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Section: Introductionmentioning

confidence: 99%

Deciphering the black-box of monetary policy transmission in South Asia

Mohammad,

Khan

2024

Econ. J. Emerg. Mark.

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“…The subsequent paper by Bhatia (2023) investigates the crucial issue of the bank capital channel in India. The bank capital channel serves as a vital conduit for transmitting monetary policy to the broader economy.…”

Section: Introduction To the Special Issue "Macroeconomic Policy Inmentioning

confidence: 99%

“…Existing analysis on India has primarily focused on the interest rate channel, and limited attention has been given to the direct role of bank capital in the transmission mechanism. Bhatia (2023) employs panel data techniques, including linear models and panel vector autoregressive (PVAR) models, and analyzes data from a diverse set of 26 banks, including public sector banks, private sector banks, and foreign banks, over a period from 2004 to 2020. The results obtained from both linear and panel VAR models reveal that monetary policy indeed has a significant impact on the Tier-I capital of banks, primarily through its influence on interest margins.…”

Section: Introduction To the Special Issue "Macroeconomic Policy Inmentioning

confidence: 99%