Title: Monetary policy and bank lending behavior
Authors: Christos Savva - Cyprus University of Technology (Cyprus) [presenting]
Demetris Koursaros - Cyprus University of Technology (Cyprus)
Nektarios Michail - Bank of Cyprus (Cyprus)
Abstract: The aim is to test the conjecture that easy money policies of central banks, setting low rates for long, could have an impact on bank lending behavior. If the conjecture holds then policy rate shocks should have persistent effects on bank behavior either through the bank lending or the risk-taking channel. Using ten euro-area countries under a shock persistence methodology, we find only country-specific, idiosyncratic effects of the policy rate on bank lending growth and no effect on credit risk. Consequently, the findings do not support the view that the prolonged duration of relatively low rates has been the culprit for the excess risk-taking behavior, and instead support the view proposed by Milton Friedman that changes in the policy rate can only have a transitory impact on the economy.