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Monetary policy shock and impact asymmetry in bank lending channel: Evidence from the UK housing sector

Rosen Chowdhury Orcid Logo, Dilshad Jahan, Tapas Mishra Orcid Logo, Mamata Parhi Orcid Logo

International Journal of Finance and Economics

Swansea University Authors: Rosen Chowdhury Orcid Logo, Dilshad Jahan

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DOI (Published version): 10.1002/ijfe.2696

Abstract

Banks play a defining role in translating monetary policy shocks to pull or push-effects in the housing market. The literature is ambiguous on the exact role of bank lending channel (BLC) in translating such effects into either moderation or acceleration of dynamics in the housing market. This paper...

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Published in: International Journal of Finance and Economics
ISSN: 1076-9307 1099-1158
Published: Wiley 2022
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URI: https://cronfa.swan.ac.uk/Record/cronfa60856
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first_indexed 2022-08-19T04:55:16Z
last_indexed 2023-01-13T19:21:18Z
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spelling v2 60856 2022-08-19 Monetary policy shock and impact asymmetry in bank lending channel: Evidence from the UK housing sector 6f0a211cd0023a2a351371189c33ae4b 0000-0003-1796-9603 Rosen Chowdhury Rosen Chowdhury true false 55587bac1648d0f274ca85a5e076e428 Dilshad Jahan Dilshad Jahan true false 2022-08-19 ECON Banks play a defining role in translating monetary policy shocks to pull or push-effects in the housing market. The literature is ambiguous on the exact role of bank lending channel (BLC) in translating such effects into either moderation or acceleration of dynamics in the housing market. This paper argues that monetary policy shocks, of the same magnitude, can have asymmetric implications for a housing market via a state dependent BLC, particularly during expansion and recessionary phases of the business cycle. We test this hypothesis for the UK housing sector using a long quarterly data (1973Q1-2015Q4) and employing Markov Switching Vector Auto Regression (MSVAR) models. Our results show that the magnitude of the bank lending channel is contingent upon the state of the economy, with a one standard deviation expansionary monetary policy shock producing a significant effect only in normal economic times. Further study on whether large cuts in policy rates could stimulate mortgage lending and whether there is impact asymmetry to dissimilar expansionary monetary policy shocks during financial crisis, we show that a sharp cut in policy rate indeed stimulates the BLC greater compared to smaller expansionary money policy shocks during recessions. Journal Article International Journal of Finance and Economics 0 Wiley 1076-9307 1099-1158 bank lending channel, Markov, monetary transmission, real estate economics,switching VAR 7 9 2022 2022-09-07 10.1002/ijfe.2696 COLLEGE NANME Economics COLLEGE CODE ECON Swansea University External research funder(s) paid the OA fee (includes OA grants disbursed by the Library) 2023-08-30T12:13:07.7417837 2022-08-19T05:41:56.8551311 Faculty of Humanities and Social Sciences Rosen Chowdhury 0000-0003-1796-9603 1 Dilshad Jahan 2 Tapas Mishra 0000-0002-6902-2326 3 Mamata Parhi 0000-0003-4024-0431 4 60856__25211__d6618389f58a4b63810c07ef9fdb8adf.pdf 60856_VoR.pdf 2022-09-23T16:29:33.2595470 Output 1780288 application/pdf Version of Record true © 2022 The Authors. This is an open access article under the terms of the Creative Commons Attribution License true eng http://creativecommons.org/licenses/by/4.0/ 118
title Monetary policy shock and impact asymmetry in bank lending channel: Evidence from the UK housing sector
spellingShingle Monetary policy shock and impact asymmetry in bank lending channel: Evidence from the UK housing sector
Rosen Chowdhury
Dilshad Jahan
title_short Monetary policy shock and impact asymmetry in bank lending channel: Evidence from the UK housing sector
title_full Monetary policy shock and impact asymmetry in bank lending channel: Evidence from the UK housing sector
title_fullStr Monetary policy shock and impact asymmetry in bank lending channel: Evidence from the UK housing sector
title_full_unstemmed Monetary policy shock and impact asymmetry in bank lending channel: Evidence from the UK housing sector
title_sort Monetary policy shock and impact asymmetry in bank lending channel: Evidence from the UK housing sector
author_id_str_mv 6f0a211cd0023a2a351371189c33ae4b
55587bac1648d0f274ca85a5e076e428
author_id_fullname_str_mv 6f0a211cd0023a2a351371189c33ae4b_***_Rosen Chowdhury
55587bac1648d0f274ca85a5e076e428_***_Dilshad Jahan
author Rosen Chowdhury
Dilshad Jahan
author2 Rosen Chowdhury
Dilshad Jahan
Tapas Mishra
Mamata Parhi
format Journal article
container_title International Journal of Finance and Economics
container_volume 0
publishDate 2022
institution Swansea University
issn 1076-9307
1099-1158
doi_str_mv 10.1002/ijfe.2696
publisher Wiley
college_str Faculty of Humanities and Social Sciences
hierarchytype
hierarchy_top_id facultyofhumanitiesandsocialsciences
hierarchy_top_title Faculty of Humanities and Social Sciences
hierarchy_parent_id facultyofhumanitiesandsocialsciences
hierarchy_parent_title Faculty of Humanities and Social Sciences
document_store_str 1
active_str 0
description Banks play a defining role in translating monetary policy shocks to pull or push-effects in the housing market. The literature is ambiguous on the exact role of bank lending channel (BLC) in translating such effects into either moderation or acceleration of dynamics in the housing market. This paper argues that monetary policy shocks, of the same magnitude, can have asymmetric implications for a housing market via a state dependent BLC, particularly during expansion and recessionary phases of the business cycle. We test this hypothesis for the UK housing sector using a long quarterly data (1973Q1-2015Q4) and employing Markov Switching Vector Auto Regression (MSVAR) models. Our results show that the magnitude of the bank lending channel is contingent upon the state of the economy, with a one standard deviation expansionary monetary policy shock producing a significant effect only in normal economic times. Further study on whether large cuts in policy rates could stimulate mortgage lending and whether there is impact asymmetry to dissimilar expansionary monetary policy shocks during financial crisis, we show that a sharp cut in policy rate indeed stimulates the BLC greater compared to smaller expansionary money policy shocks during recessions.
published_date 2022-09-07T12:13:08Z
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score 10.999161

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