The bank lending channel reconsidered

It has been widely accepted that constraints on the wholesale funding of bank balance sheets amplify the transmission of monetary policy through what is called the ‘bank lending channel’. We show that the effect of such bank balance sheet constraints on monetary transmission is in fact theoretically ambiguous, with the prior expectation, based on standard theoretical models of household and corporate portfolios, that the bank lending channel attenuates monetary policy transmission. We examine macroeconomic data for the G8 countries and find no evidence that banking sector deposits respond negatively and more than lending to tightening of monetary policy, as the accepted view of the bank lending channel requires. The overall picture is mixed, but these data generally suggest that deposits fluctuate procyclically and somewhat less over the business cycle than bank lending, and that total bank deposits, unlike bank lending, show little direct response to changes in interest rates. This suggests it is very unlikely that the bank lending channel amplifies monetary policy. Our paper has thus corrected a misunderstanding about the role of banks in monetary policy transmission that has persisted in the literature for some two decades.credit channel; monetary transmission; bank financing constraints

The limits of transnational solidarity : the Congress of South African Trade Unions and the Swaziland and Zimbabwean crises

The Congress of South African Trade Unions (COSATU), the main union federation in South Africa, was instrumental in ending apartheid. This paper evaluates COSATU's post-apartheid role in working for democracy elsewhere in Southern Africa through deepening transnational solidarity, focusing on its role in Zimbabwe and Swaziland. Although the federation successfully mobilised trade union members to oppose the contravention of human and labor rights, its ability to affect lasting change was limited by contradictory messages and actions by the South African government, the dualistic nature of institutional formation in these countries, strategic miscalculations and structural limitations on union power

Banking crisis solutions old and new

In 2007 Britain experienced its first run on a bank of any macroeconomic significance since 1866. This was not dealt with by the method that had maintained banking stability for so long: letting the bank fail but supplying abundant liquidity to the markets to prevent contagion. In this paper the authors examine why that traditional solution was not used and propose changes to Britain's deposit insurance system, to its bank insolvency regime, and in arrangements to allow customers access to banking services should their bank be closed-so that the traditional approach can once more be used to mitigate moral hazard.Risk management ; Banks and banking

Coordinated international economic expansion: are convoys or locomotives the answer?

International economic integration

Money-income relationships and the exchange rate regime

Demand for money ; Foreign exchange rates

An introduction to non-tariff barriers to trade

International trade ; Tariff ; Import quotas

Coping with bank failures: some lessons from the United States and the United Kingdom

Bank failures ; Great Britain ; Banks and banking - History

Labour market reform and the sustainability of exchange rate pegs

It is commonly thought that an open economy can accommodate output shocks through either exchange rate or real sector adjustments. We formalise this notion by incorporating labour market rigidities into an “escape clause” model of currency crises. We show that the absence of structural reform makes a currency peg more fragile and undermines the credibility of the monetary authority in a dynamic setting. The fragility is captured by a devaluation premium in expectations that increases the average inflation rate when the currency peg is more vulnerable to “busts” than “booms”. This interaction between macroeconomic and microeconomic rigidities suggests that a policy reform can only be consistent if it renders either exchange rates or labour markets flexible. JEL Classification: E42, F33, D84Exchange rate policy, labour market flexibility, structural reform

The recent U.S. trade deficit - no cause for panic

International trade ; Balance of trade