The transmission of interest rate changes and the role of bank balance sheets: A VAR-analysis for the Netherlands

Harry Garretsen; Job Swank

doi:10.1016/S0164-0704(98)00060-3

The transmission of interest rate changes and the role of bank balance sheets: A VAR-analysis for the Netherlands

Harry Garretsen, Job Swank

Research output: Contribution to journal › Article › Academic › peer-review

27 Citations (Scopus)

Abstract

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.

Original language	English
Pages (from-to)	325-339
Number of pages	15
Journal	Journal of Macroeconomics
Volume	20
Issue number	2
DOIs	https://doi.org/10.1016/S0164-0704(98)00060-3
Publication status	Published - 1998
Externally published	Yes

Keywords

MONETARY TRANSMISSION
MODELS
GERMANY
CHANNELS
COINTEGRATION

Access to Document

10.1016/S0164-0704(98)00060-3

Cite this

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title = "The transmission of interest rate changes and the role of bank balance sheets: A VAR-analysis for the Netherlands",

abstract = "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.",

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AU - Garretsen, Harry

AU - Swank, Job

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AB - 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.

KW - MONETARY TRANSMISSION

KW - MODELS

KW - GERMANY

KW - CHANNELS

KW - COINTEGRATION

U2 - 10.1016/S0164-0704(98)00060-3

DO - 10.1016/S0164-0704(98)00060-3

M3 - Article

VL - 20

SP - 325

EP - 339

JO - Journal of Macroeconomics

JF - Journal of Macroeconomics

SN - 0164-0704

IS - 2

ER -