THE ROLE OF UNCERTAINTY IN THE TRANSMISSION OF MONETARY POLICY EFFECTS ON BANK LENDING

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  • Manuscript received 6.11.09; final version received 17.9.10.

Abstract

In this paper we re-examine commercial banks' lending behavior taking into account changes in the stance of monetary policy in conjunction with changes in financial sector uncertainty. Our empirical findings, gathered from a very large data set covering all banks in the USA between 1986 and 2000, cast substantial doubt on the presence of a bank lending channel for the USA. We also show that financial uncertainty has an important and significant role in the monetary policy transmission mechanism which varies considerably across bank categories and the strength of banks' balance sheets.

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