Banks' regulatory buffers, liquidity networks and monetary policy transmission

Authors: Merkl, Christian¹; Stolz, Stephanie²

Source: Applied Economics, Volume 41, Number 16, July 2009 , pp. 2013-2024(12)

Publisher: Routledge, part of the Taylor & Francis Group

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Abstract:

Based on a quarterly regulatory dataset for German banks from 1999 to 2004, this article analyses the effects of banks' regulatory capital on the transmission of monetary policy in a system of liquidity networks. The dynamic panel regression results provide evidence in favour of the bank capital channel theory. Banks holding less regulatory capital and less interbank liquidity react more restrictively to a monetary tightening than their peers.

Document Type: Research article

DOI: http://dx.doi.org/10.1080/00036840802360245

Affiliations: 1: Kiel Institute for the World Economy (IfW), Dusternbrooker Weg 120, 24105 Kiel, Germany,Christian-Albrechts-Universitat zu Kiel, 24118 Kiel, Germany 2: Deutsche Bundesbank, Frankfurt am Main, Germany,International Monetary Fund, Washington, DC, 20431, USA

Publication date: 2009-07-01

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