The behaviour of the bank lending channel when interest rates approach the zero lower bound: Evidence from quantile regressions

Apergis, Nicholas and Christou, Christina (2015) The behaviour of the bank lending channel when interest rates approach the zero lower bound: Evidence from quantile regressions. Economic Modelling, 49. pp. 296-307. ISSN 0264-9993

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Official URL: http://dx.doi.org/10.1016/j.econmod.2015.05.005

Abstract

This paper examines the dynamic behaviour of the bank lending channel at the mean and at various quantiles for a sample of European banks, by making use of the quantiles regression methodology, spanning the period 2000–2012. In the first case, the bank lending channel exists. In contrast, when policy interest rates are estimated at lower quantiles as the rates approach the Zero Lower Bound, the monetary policy's capacity to influence banking loans seems to lose its momentum and is found to be completely ineffective below a critical policy interest rate. The results remain robust for different bank characteristics such as capitalisation, asset size, and liquidity, as well as for alternative scenarios concerning the definition of monetary decisions and the construction of lending activities. The empirical findings also survived other robustness checks, such as a different methodological approach, the role of securitisation and the role of non-conventional monetary policy measures. The empirical findings are expected to be significant in the context of the recent global financial crisis where central banks had to push down their policy interest rates close to zero. In such a distressed financial environment, changes in bank lending terms should form an explicit component of macroeconomic models that describe monetary policy rules used for policy advice.

Item Type: Article
Uncontrolled Keywords: Bank lending channel; Zero lower bound; European banks; Quantile regressions
Subjects: N100 Business studies
N300 Finance
Department: Faculties > Business and Law > Newcastle Business School > Accounting and Finance
Depositing User: Becky Skoyles
Date Deposited: 22 Jun 2015 06:59
Last Modified: 03 Nov 2016 15:46
URI: http://nrl.northumbria.ac.uk/id/eprint/23027

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