No. 256 - The Credit Channel of Monetary Policy across Heterogeneous Banks: The Case of Italy

by Ignazio Angeloni, Luigi Buttiglione, Giovanni Ferri and Eugenio Gaiotti
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In this paper we use micro-data to study the impact of monetary policy shocks on the lending rates offered by selected groups of banks in Italy. Within the literature on the "credit view", the paper contributes in two directions: first, it offers evidence in favour of a separate lending channel in the transmission of monetary policy in Italy; second, it shows the existence of significant distributional effects, which may be relevant for evaluating the constraints and trade-offs of alternative monetary policies. The average loan-bond rate spread is shown to rise after a monetary tightening, a well known implication of the lending view. Moreover, contrary to theory and observed experience in other countries, large banks and banks with large loans tend to tighten credit conditions more than other banks following a monetary restriction. Since bank size and borrower size are correlated, this implies a comparatively smaller impact of monetary policy on small firms. We offer two interpretations of these findings, both compatible with the credit view; namely, smaller banks may refrain from fully adjusting their lending rates because of the existence of customer relationships and because of their monopoly power in local markets.

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  1. 30 September 1995
    No. 256 - The Credit Channel of Monetary Policy across Heterogeneous Banks: The Case of Italy
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