We present evidence of monetary transmission in the Netherlands from a VAR-model estimated with monthly data covering the period 1979–1993. It is found that M2 and, to a lesser extent, bond holdings of banks outperform bank credit as leading indicators for monetary policy. Bond holdings are adjusted almost immediately in response to an interest rate shock. This, combined with the sluggish reaction of intermediated loans, may suggest that banks display buffer-stock behavior. The results for the real economy point to a fairly flat aggregate supply curve, implying that nominal price rigidities are important in the Dutch economy.
- MONETARY TRANSMISSION