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- Title
Money Demand, Bank Lending and State Output.
- Authors
SMOLUK, BERT
- Abstract
This paper examines both money demand and the bank lending channel across the lower 48 states and detects changes in their behavior over the last several decades. Our analysis shows that while the income elasticity of money demand has remained relatively stable over recent decades, the sensitivity of money demand to interest rates has declined a bit after the Great Recession. In contrast, the bank lending channel appears to have changed dramatically as it was robust before the Great Recession but vanished from the data afterward. We suspect that the breakdown in the bank lending channel, in an economy with stable money demand, is due to the regulatory uncertainty that permeated the banking sector after the financial crisis. Finally, the bank lending channel, often associated in the literature with small banks, is active even in larger banks, although output is somewhat less sensitive to changes in loans.
- Subjects
DEMAND for money; COMMUNITY banks; ELASTICITY (Economics); FINANCIAL crises; INTEREST rates
- Publication
Quarterly Journal of Finance & Accounting, 2020, Vol 58, Issue 1/2, p67
- ISSN
1939-8123
- Publication type
Article