Title: On the effect of monetary policy on bank behaviour: Evidence from bank credit standards
Authors: Nektarios Michail - Cyprus University of Technology (Cyprus) [presenting]
Demetris Koursaros - Cyprus University of Technology (Cyprus)
Abstract: The purpose is to examine whether conventional monetary policy has an impact on bank credit standards through the manipulation of interest rates. Using three distinct methodologies, the results confirm that the policy rate appears to have the expected tightening impact on credit standards. However, this effect is not found to be large and, most importantly, it is likely to be outweighed by the presence of counteracting factors, the most notable of which is private consumption. Other macroeconomic factors such as the yield curve, inflation, investment, and housing prices also have an impact on bank credit standards, the size of which varies across specifications. As such, the empirical results suggest that while the interest rate can cool off banking behaviour, ceteris paribus, i.e. if no change in the economy takes place, this is not likely a realistic scenario given that many other changes in other macroeconomic factors also take place at the same time.