Using bank-level data from India, we examine the impact of ownership on the reaction of banks to monetary policy, and also test whether the reaction of different types of banks to monetary policy changes is different in easy and tight policy regimes. Our results suggest that there are considerable differences in the reactions of different types of banks to monetary policy initiatives of the central bank, and that the bank lending channel of monetary policy is likely to be much more effective in a tight money period than in an easy money period. We also find differences in impact of monetary policy changes on less risky short-term and more risky medium-term lending. We discuss the policy implications of the findings.
Bibliographical noteNOTICE: this is the author’s version of a work that was accepted for publication in Journal of banking and finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Bhaumik, S, Dang, V & Kutan, AM, 'Implications of bank ownership for the credit channel of monetary policy transmission: evidence from India' Journal of banking and finance, vol 35, no. 9 (2011) DOI 10.1016/j.jbankfin.2011.02.003
- monetary policy regimes
- bank ownership
- credit channel of monetary policy