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date: 21 February 2018

Abstract and Keywords

This article provides an overview of recent research about the role played by bank lending in the transmission of monetary policy. It begins with a description of the mechanisms, under both the money view and the credit view, by which monetary policy is transmitted to the economy through the banking sector. The third section examines the empirical evidence on how bank lending responds to changes in monetary policy. The fourth section briefly reviews some of the literature on the role of banks in other countries, many of which are far more dependent on bank lending than is the US. The fifth section discusses how the role of bank lending may be altered by recent financial innovations and provides observations on the implications of recent events for the effectiveness of the bank lending channel.

Keywords: bank lending, monetary policy, banking sector, financial innovations

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