| Summary: | 碩士 === 世新大學 === 經濟學系 === 89 === There are many theories about monetary policy laid emphasis on the liability side of banking system, attached importance to the effects of various definition of monetary aggregates on economic activities. The scholars possess this perspective which called the Money View were under the impression that the central bank could modulate or fine tune of the economic prosperity via adjusting the monetary base or short-term interest rate and to the extent the whole level interest rate of the financial market to influence the economic unit‘s consumption and investment decision, under the assumption of Expectation Hypothesis of term structure of interest rate. Namely, the effect of monetary policy will transmit through the interest rate.
However, the Credit View of monetary policy place importance on the asset side of the banking system and was of the opinion that sometimes financial intermediaries or banks were unwilling to loan their fund when they were based on consideration of financial risks or face uncertainty or asymmetric information toward their customers or borrowers. Under the circumstances that consumption and investment expenditure of economic unit were fairly dependent on bank loan, the central bank would have the influence on controlling the real economic activities via adjusting the supply level of bank loan through monetary policy instruments. In other words, the effects of monetary policy could transmit through the bank loan channel.
The validity of bank loan as a transmission channel of monetary policy was under the premise that the central bank has the ability to affect the lending behavior of financial intermediaries or banks. When the monetary authority adopt contractive policy, for example, to urge banks to hold more reserve, they must inevitably reduce their loan under the condition that balance sheet must be balanced. But if the bank will think of their operational condition like maintaining the relationship with their customers or being limited by the loan commitment, they would probably recombine their asset-liability mix, for example, to sell the high liquidity security under the asset side and raise non-depository fund like sell NCDs or financial bonds under the liability side, preserving the established lending activities. Under these circumstances, the banks could counteract the effects of tight monetary policy on their lending activities, and the bank loan channel of monetary policy would be next to nothing.
This article has collected the seasonal and monthly data for Taiwan during 1980 to 2000 and engaged in empirical research by regression analysis and Vector Auto-Regression(VAR) model. By separating our analysis into two parts, our main goal conferred on existence of bank loan channel in Taiwan. Following the previous author’s ideas and empirical methods, we use inter-bank interest rate (Federal Fund Rate in U.S.) for our quantitative indicator of monetary stance.
In our first part of analysis, by using Impulse Response Functions (IRFs) and Variance Decompositions (VDCs) analysis, we found that when central bank adopt contractive policy, the response of real economic activities like gross domestic product and consumer price index were trifling and tardy. It is important to note that the bond holding or short-term securities of banks were suddenly reduced and could be explained by the hypothesis that banks would hold them for buffer stocks to withstand the monetary shocks on their lending activities. On the other hand, the raising amount of non-depository funds like NCDs and financial bonds showed a significantly increase. The amount of bank credit increased in the short run, subsequently decreased with descending output probably caused by tight monetary stance. From the above analysis, we could judge that the bank loan channel of monetary policy was not evident in Taiwan, the observed decreasing amount of bank credit following the contractive policy was more likely caused by demand side.
In the second part of analysis, we discuss the possible distributional effect of monetary policy. Following the former literature ‘s ideas and methods, we separated the data of bank credit into two groups, the one is the loan to individual or household sector and the loan to corporate sector, the other is the long-term loan and the short-term loan. Under the assumption that the problem of asymmetric information is more severe for household sector than corporate sector, long-term loan is more severe than short-term loan, our empirical outcomes based on IRFs and VDCs analysis in VAR model showed that when there was a contractive monetary shock, the term structure of bank credit shifted from long-term to short-term and was permitted to explain by Bernanke(2000)’s Flight to Quality Hypothesis. On the other hand, our empirical results showed that the bank loan was shifted from corporate sector to household sector. It is by no means that the Flight to Quality Hypothesis was not correct. Instead, the possible explanation is that the effects of monetary contraction was bigger for corporate than household sector, that’s the possible adverse problem of asymmetric information was more serious in corporate sector, at least from the viewpoint of banks.
On the following research direction, the empirical analysis of my article assumed that the effects of expansionary monetary policy are equal and mirrored with the tight monetary policy. But what is the truth? The influences of monetary shocks on economic activities were probably different in different business cycles, and the effects and transmission channels of expansionary and contractive policy are not necessarily identical. All above issues might be investigated by regime-switching econometric models. On the other facet, there may be other possible transmission channels of monetary policy like stock market value or asset price effect which could be used by monetary authority to modulate the economic prosperity under the condition that the market value of stock was comparatively plenty and volatile in Taiwan; and the central bank could also adjust the level of exchange rate to affect the amount of net exports to stimulate the real economic activities under the situation that Taiwan is a small open economy.
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