Examining the Monetary Policy Transmission in Jordan: The Bank-Lending Channel
Abstract
This study examines the relevance of banking lending channel in Jordan using OLS,
fixed effect model and random effect over the period 2001-2012. The growth in
bank loans of all the sixteen local banks operating in Jordan is regressed on the
current and lagged values of changes in the short-term money market rate, bank
securities holdings, deposits, GDP and the lagged value of change in bank lending.
Furthermore, the interaction of bank features including size, liquidity, capitalization
and loan-loss provision with monetary policy stance on the loan supply is evaluated
to control for potential bias of endogeneity that result from including the lagged
values of explanatory variables.
Our results unexpectedly show that the bank lending responds positively to changes
in the contemporaneous stance of monetary policy. In other words, the increase in
the short-term interest rate motivates the banks to increase their loans holdings. This
behavior has been reinforced by the synchronized regulatory pressure on banks to
increase their equity capital holding over the study period. Thus, the administrators
of the banks and the monetary authority in Jordan should watch the concomitant
consequences of the monetary policy transmission and monitor the micro-dynamics
of individual banks as the excessive expansion in loan supply may exposes the
banks to higher levels of operating risks and other forms of risk.
JEL Classification: C33, E5, E31, E58, P24, G21, E52, O16, O23.
DOI/handle
http://hdl.handle.net/10576/49735Collections
- Finance & Economics [394 items ]