The bank lending channel of monetary policy: identification and estimation using Portuguese micro bank data

This paper investigates the existence of the bank-lending channel in the transmission of monetary policy using Portuguese micro bank data. In contrast to the conventional approach, which addresses the identification issue by resorting to reduced form equations for bank credit with variables in differences, we directly estimate loan-supply schedules with variables in levels, thereby exploiting recent results on cointegration for panel data. We conclude that there is evidence of the existence of a bank-lending channel, and that the importance of the bank lending-channel is larger for less capitalised banks.Monetary policy transmission mechanism; bank lending channel; identification; nonstationary panel data; cointegration

The bank lending channel of monetary policy: identification and estimation using Portuguese micro bank data

This paper investigates the existence of the bank-lending channel in the transmission of monetary policy using Portuguese micro bank data. In contrast to the conventional approach, which addresses the identification issue by resorting to reduced form equations for bank credit with variables in differences, we directly estimate loan-supply schedules with variables in levels, thereby exploiting recent results on cointegration for panel data. We conclude that there is evidence of the existence of a bank-lending channel, and that the importance of the bank lending-channel is larger for less capitalised banks JEL Classification: C33, E44, E52, G21bank lending channel, Identification, Monetary policy transmission mechanism

Using Mean Reversion as a Measure of Persistence

This paper elaborates on the alternative measure of persistence recently suggested in Marques (2004), which is based on the idea of mean reversion. A formal distinction between the “unconditional probability of a given process not crossing its mean in period t” and its estimator, is made clear and the relationship between this new measure and the widely used “sum of the autoregressive coefficients”, as alternative measures of persistence, is investigated. Using the law of large numbers and the central limit theorem, properties for the estimator of the new measure of persistence are established, which allow tests of hypotheses to be performed, under very general conditions. Finally, some Monte Carlo experiments are conducted in order to compare the finite sample properties of the estimator for the “unconditional probability of a given process not crossing its mean in period t” and the OLS estimator for the “sum of the autoregressive coefficients”.

Should we Distinguish Between Static and Dynamic Long Run Equilibrium in Error Correction Models?

This paper shows that there is no theoretical foundation to distinguish between static and dynamic long run equilibrium in error correction models with deterministically cointegrated variables, and so, that the so-called dynamic homogeneity restriction aimed at guaranteeing that the two solutions coincide, also lacks a theoretical justification. Examples in which dynamic homogeneity cannot hold are also discussed.

The dynamic effects of shocks to wages and prices in the United States and the euro area

This paper investigates the dynamics of aggregate wages and prices in the United States (US) and the Euro Area (EA) with a special focus on persistence of real wages, wage and price inflation. The analysis is conducted within a structural vector error-correction model, where the structural shocks are identified using the long-run properties of the theoretical model, as well as the cointegrating properties of the estimated system. Overall, in the long run, wage and price inflation emerge as more persistent in the EA than in the US in the face of import price, unemployment, or permanent productivity shocks. This finding is robust to the changes in the sample period and in the models’ specifications entertained in the paper. JEL Classification: C32, C51, E31, J30impulse response function, Persistence, structural error-correction model

Using mean reversion as a measure of persistence

This paper elaborates on the alternative measure of persistence recently suggested in Marques (2004), which is based on the idea of mean reversion. A formal distinction between the “unconditional probability of a given process not crossing its mean in period t” and its estimator, is made clear and the relationship between this new measure and the widely used “sum of the autoregressive coefficients”, as alternative measures of persistence, is investigated. Using the law of large numbers and the central limit theorem, properties for the estimator of the new measure of persistence are established, which allow tests of hypotheses to be performed, under very general conditions. Finally, some Monte Carlo experiments are conducted in order to compare the finite sample properties of the estimator for the “unconditional probability of a given process not crossing its mean in period t” and the OLS estimator for the “sum of the autoregressive coefficients”. JEL Classification: E31, C22, E52Inflation persistence, Mean reversion, non-parametric estimator