Monetary Policy Transmission in Emerging Asia: The Role of Banks and the Effects of Financial Globalization
Keywords:
Monetary policy transmission, bank lending channel, financial globalizationAbstract
Given the heavy reliance on bank lending as the main source of financing in most Asian economies, banks could potentially play a pivotal role in monetary policy transmission. However, we find that Asia’s bank lending channel or, more broadly, the credit channel of domestic monetary policy is not very strong at the aggregate level. Using bank-level data for nine Asian economies during 2000–2013, we show that the heterogeneity of bank characteristics (e.g., ownership type, financial position), degree of foreign bank penetration of the domestic banking sector, and global financial conditions all have a bearing on the response of domestic credit to changes in domestic monetary policy, and may account for the apparently weak credit channel at the aggregate level.
References
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2. Bernanke, Ben S. and A.S. Blinder (1992), “The Federal Funds Rate and the Channels of Monetary Transmission,” American Economic Review, Vol. 82, No. 4, pp. 901–27.
3. Bernanke, Ben S. and Mark Gertler (1995), “Inside the Black Box: The Credit Channel of Monetary Policy Transmission,” Journal of Economic Perspectives, Vol. 9, No. 4, pp. 27–48.
4. Borio, Claudio and Haibin Zhu (2008), “Capital Regulation, Risk-taking and Monetary Policy: A Missing Link in the Transmission Mechanism?” BIS Working Paper No. 268, (Basel: Bank for International Settlements).
5. Ciccarelli, Matteo, Angela Maddaloni and Jose-Luis Peydro (2013), “Heterogeneous Transmission Mechanism: Monetary Policy and Financial Fragility in the Euro Area,” European Central Bank Working Paper No. 1527.
6. Cetorelli, Nicola and Linda Goldberg (2012), “Banking Globalization and Monetary Transmission,” The Journal of Finance, 67, pp. 1811-1843.
7. De Santis, Roberto A. and Paolo Surico (2013), “Bank Lending and Monetary Transmission in the Euro Area,” European Central Bank Working Paper No. 1568.
8. Disyatat, Piti and Pinnarat Vongsinsirikul (2003), “Monetary Policy and the Transmission Mechanism in Thailand,” Journal of Asian Economics, Vol. 14, Issue 3, pp. 389–418.
9. Houston, J.F. and C. James (1998), “Do Bank Internal Capital Markets Promote Lending?” Journal of Banking and Finance, Vol. 22, Issue 6–8, pp. 899–918.
10. Jeon, B.N., Hosung Lim, and Ji Wu (2014), “The Impact of Foreign Banks on Monetary Policy Transmission during the Global Financial Crisis of 2008-2009: Evidence from Korea,” Bank of Korea Working Paper No.2014-08.
11. Kashap, Anil K., Jeremy C. Stein, David W. Wilcox (1993), Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance,” American Economic Review, Vol. 83, pp. 78–98.
12. Kashap, Anil K and Jeremy C. Stein (1995), “The Impact of Monetary Policy on Bank Balance Sheets,” Carnegie-Rochester Conference Series on Public Policy 42, pp. 151 95.
13. __________ (2000), “What Do a Million Observations on Banks Say About the Transmission of Monetary Policy?” The American Economic Review, Vol. 90, No. 3 pp. 407–28.
14. Kishan, Ruby P. and Timothy P. Opiela (2000), “Bank Size, Bank Capital, and the Bank Lending Channel,” Journal of Money, Credit and Banking, Vol. 32, No. 1, pp. 121 41.
15. Olivero, María P, Yuan Li, Bang Nam Jeon (2011a), “Consolidation in Banking and the Lending Channel of Monetary Transmission: Evidence from Asia and Latin America,” Journal of International Money and Finance Vol. 30, Issue 6, pp. 1034–54.
16. __________ (2011b), “Competition in Banking and the Lending Channel: Evidence from Bank-level Data in Asia and Latin America” Journal of International Money and Finance, Vol. 30, 560–71.
17. Peersman, Gert and Frank Smets (2001), “The Monetary Transmission Mechanism in the Euro Area: More Evidence from VAR Analysis,” European Central Bank Working Paper No. 91.
18. Wu, Ji, Alina Luca, and Bang Nam Jeon (2011), “Foreign Bank Penetration and the Lending Channel in Emerging Economies: Evidence from Bank-Level Panel Data,” Journal of International Money and Finance, Vol. 30, Issue 6, 1128–56.
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Published
2018-08-03
How to Cite
Ananchotikul, N., & Seneviratne , D. . (2018). Monetary Policy Transmission in Emerging Asia: The Role of Banks and the Effects of Financial Globalization. Thailand and The World Economy, 34(3), 1–34. Retrieved from https://so05.tci-thaijo.org/index.php/TER/article/view/137806
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