Banks Exposure to Interest Rate Risk and The Transmission of Monetary Policy

Landier, Augustin, Sraer, David and Thesmar, David (2013) Banks Exposure to Interest Rate Risk and The Transmission of Monetary Policy. TSE Working Paper, n. 13-438, Toulouse

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Official URL: http://tse-fr.eu/pub/27663

Abstract

We show empirically that banks' exposure to interest rate risk, or income gap, plays a crucial role in
monetary policy transmission. In a first step, we show that banks typically retain a large exposure
to interest rates that can be predicted with income gap. Secondly, we show that income gap also predicts
the sensitivity of bank lending to interest rates. Quantitatively, a 100 basis point increase in the Fed
funds rate leads a bank at the 75th percentile of the income gap distribution to increase lending by
about 1.6 percentage points annually relative to a bank at the 25th percentile.

Item Type: Monograph (Working Paper)
Language: English
Date: February 2013
Place of Publication: Toulouse
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 09 Jul 2014 17:39
Last Modified: 20 Mar 2018 15:13
OAI ID: oai:tse-fr.eu:27663
URI: http://publications.ut-capitole.fr/id/eprint/15745

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