Heterogeneous Effects of Unconventional Monetary Policy on Loan Demand and Supply. Insights from the Bank Lending Survey

TL;DR

This paper investigates how unconventional monetary policy impacts bank loan demand and supply in the euro area, revealing heterogeneous effects across countries using structural impulse responses and bank lending survey data.

Contribution

It uniquely employs country-specific data to analyze the effects of unconventional monetary policy, providing deeper insights into the bank lending channel's heterogeneity.

Findings

Expansionary policy increases loan demand and supply.

Heterogeneous effects observed across countries.

Small north-south disparities identified.

Abstract

This paper analyzes the bank lending channel and the heterogeneous effects on the euro area, providing evidence that the channel is indeed working. The analysis of the transmission mechanism is based on structural impulse responses to an unconventional monetary policy shock on bank loans. The Bank Lending Survey (BLS) is exploited in order to get insights on developments of loan demand and supply. The contribution of this paper is to use country-specific data to analyze the consequences of unconventional monetary policy, instead of taking an aggregate stance by using euro area data. This approach provides a deeper understanding of the bank lending channel and its effects. That is, an expansionary monetary policy shock leads to an increase in loan demand, supply and output growth. A small north-south disparity between the countries can be observed.