TY - JOUR
T1 - Monetary policy shock and impact asymmetry in bank lending channel: Evidence from the UK housing sector
AU - Chowdhury, Rosen Azad
AU - Jahan, Dilshad
AU - Mishra, Tapas
AU - Parhi, Mamata
PY - 2022/9/7
Y1 - 2022/9/7
N2 - AbstractBanks play a defining role in translating monetary policy shocks to pull or push‐effects in the housing market. The literature is ambiguous on the exact role of bank lending channel (BLC) in translating such effects into either moderation or acceleration of dynamics in the housing market. This paper argues that monetary policy shocks, of the same magnitude, can have asymmetric implications for a housing market via a state dependent BLC, particularly during expansion and recessionary phases of the business cycle. We test this hypothesis for the UK housing sector using a long quarterly data (1973Q1‐2015Q4) and employing Markov Switching Vector Auto Regression (MSVAR) models. Our results show that the magnitude of the bank lending channel is contingent upon the state of the economy, with a one standard deviation expansionary monetary policy shock producing a significant effect only in normal economic times. Further study on whether large cuts in policy rates could stimulate mortgage lending and whether there is impact asymmetry to dissimilar expansionary monetary policy shocks during financial crisis, we show that a sharp cut in policy rate indeed stimulates the BLC greater compared to smaller expansionary money policy shocks during recessions.
AB - AbstractBanks play a defining role in translating monetary policy shocks to pull or push‐effects in the housing market. The literature is ambiguous on the exact role of bank lending channel (BLC) in translating such effects into either moderation or acceleration of dynamics in the housing market. This paper argues that monetary policy shocks, of the same magnitude, can have asymmetric implications for a housing market via a state dependent BLC, particularly during expansion and recessionary phases of the business cycle. We test this hypothesis for the UK housing sector using a long quarterly data (1973Q1‐2015Q4) and employing Markov Switching Vector Auto Regression (MSVAR) models. Our results show that the magnitude of the bank lending channel is contingent upon the state of the economy, with a one standard deviation expansionary monetary policy shock producing a significant effect only in normal economic times. Further study on whether large cuts in policy rates could stimulate mortgage lending and whether there is impact asymmetry to dissimilar expansionary monetary policy shocks during financial crisis, we show that a sharp cut in policy rate indeed stimulates the BLC greater compared to smaller expansionary money policy shocks during recessions.
KW - Accounting
KW - Economics and Econometrics
KW - Finance
UR - https://doi.org/10.1002/ijfe.2696
U2 - 10.1002/ijfe.2696
DO - 10.1002/ijfe.2696
M3 - Article
SN - 1099-1158
VL - 29
SP - 511
EP - 530
JO - International Journal of Finance & Economics
JF - International Journal of Finance & Economics
IS - 1
ER -