March 2016 issue contents
Monetary policy, bank capital, and credit supply: a role for discouraged and informally rejected firms

by Alexander Popov
European Central Bank


This paper conducts the first empirical study of the bank balance sheet channel using data on discouraged and informally rejected firms, in addition to information on the formal loan-granting process, in eight economies that use the euro or are pegged to it over 2004-7. Consistent with previous studies, I find that lax monetary conditions increase bank credit in general and bank credit to ex ante risky firms in particular, especially for banks with lower capital ratios. Importantly, I find that the results are considerably stronger when data on informal credit constraints are incorporated.

JEL Codes: E32, E51, E52, F34, G21.

Full article (PDF, 47 pages, 674 kb)