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CHANGES IN FINANCIAL STRUCTURE AND ASSET PRICE SUBSTITUTABILITY:
A TEST OF THE BANK LENDING CHANNEL

Sophocles N. Brissimis

Bank of Greece and University of Piraeus

Nicholas S. Magginas

Athens University of Economics and Business and National Bank of Greece

ABSTRACT

In this paper we develop a method for testing the implications of the Bernanke-Blinder model for monetary policy transmission. Multivariate cointegration techniques are used in a sample that includes six major industrial countries with data covering the last 25 years. Moreover, we examine whether changes in financial markets affected the degree of asset substitutability and thus the potency of the lending channel. We find that in the US and the UK, representing the “Anglo-Saxon type” of financial market structure, the lending channel is inoperative, while in Japan it is still important for monetary transmission. The other three European countries examined – Germany, France, Italy – are in between, with the lending channel losing its potency in the last decade.

Keywords: Monetary transmission mechanism; bank lending channel; financial structure; multivariate cointegration

JEL classification: C32; C52; E44; E52

We are grateful to Heather Gibson, George Tavlas and Nicholas Tsaveas for helpful comments. The views expressed in this paper are those of the authors and do not necessarily reflect those of their respective institutions.

Correspondence:

Sophocles N. Brissimis,
Economic Research Department,
Bank of Greece, 21 E. Venizelos Av.,
102 50 Athens, Greece,
Tel. +30210-320.2388
Email: sbrissimis@bankofgreece.gr


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