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Federal Reserve Bank of Dallas
Working Papers
Heterogeneous bank lending responses to monetary policy: new evidence from a real-time identification
John C. Bluedorn
Christopher Bowdler
Christoffer Koch
Abstract

We present new evidence on how heterogeneity in banks interacts with monetary policy changes to impact bank lending, at both the bank and U.S. state levels. Using an exogenous policy measure identified from narratives on FOMC intentions and real-time economic forecasts, we find much stronger dynamic effects and greater heterogeneity in U.S. bank lending responses than that found in previous research based on realized federal funds rate changes. Our findings suggest that studies using realized monetary policy changes confound monetary policy’s effects with those of changes in expected macrofundamentals. In fact, estimates from identified monetary policy changes lead to a reversal of U.S. states’ ranking by credit’s sensitivity to policy. We also extend Romer and Romer (2004)’s identification scheme, and expand the time and balance sheet coverage of the U.S. banking sample.


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John C. Bluedorn & Christopher Bowdler & Christoffer Koch, Heterogeneous bank lending responses to monetary policy: new evidence from a real-time identification, Federal Reserve Bank of Dallas, Working Papers 1404, 01 Mar 2014.
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Keywords: Monetary Transmission; Lending Channel; Monetary Policy Identification; Banking
DOI: 10.24149/wp1404
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