The B.E. Journal of Macroeconomics
Editor-in-Chief: Cavalcanti, Tiago / Mertens, Karel
Ed. by Abraham, Arpad / Carceles-Poveda , Eva / Debortoli, Davide / Kambourov, Gueorgui / Lambertini, Luisa / Pavoni, Nicola / Ruhl, Kim / Nimark, Kristoffer / Wang, Pengfei
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Most Downloaded Articles
- Comparing Wealth Effects: The Stock Market versus the Housing Market by Case, Karl E./ Quigley, John M. and Shiller, Robert J.
- Monetary and Macroprudential Policy Rules in a Model with House Price Booms by Kannan, Prakash/ Rabanal, Pau and Scott, Alasdair M.
- Who Gets the Credit? And Does It Matter? Household vs. Firm Lending Across Countries by Beck, Thorsten/ Büyükkarabacak, Berrak/ Rioja, Felix K. and Valev, Neven T.
Banking Conditions and the Effects of Monetary Policy: Evidence from U.S. States
1Federal Reserve Board, (email)
Citation Information: The B.E. Journal of Macroeconomics. Volume 12, Issue 2, ISSN (Online) 1935-1690, DOI: 10.1515/1935-1690.2411, March 2012
- Published Online:
Using data from U.S. states, this paper examines empirically how the effects of monetary policy on output depend on banking conditions. I find that when a state’s banking sector starts out with a low capital-asset ratio, its subsequent lending and output growth are both more sensitive to changes in the federal funds rate or other indicators of monetary policy. This result is consistent with the existence of a ‘bank capital channel’ as well as a conventional bank lending channel. Other evidence favors the capital channel, as bank liquidity is not associated with variation in the impact of monetary policy on output at the state level. Consistent with the theory, the importance of state-level measures of bank capital weakens significantly after the removal of regulatory barriers to interstate banking.