Banks' Exposure to Interest Rate Risk and The Transmission of Monetary Policy / Augustin Landier, David Sraer, David Thesmar.

Format:

Book

Author/Creator:

Landier, Augustin.

Contributor:

National Bureau of Economic Research.

Sraer, David.

Thesmar, David.

Series:

Working Paper Series (National Bureau of Economic Research) no. w18857.

NBER working paper series no. w18857

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

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.

Notes:

Print version record

February 2013.