Abstract
Based on a simultaneous-equation model of loan demand and loan supply and applying the three-stage least squares method, this paper finds that loan demand is negatively affected by the lending rate and positively associated with manufacturing production and the inflation rate and that loan supply is positively influenced by the lending rate, bank deposits, and the nominal effective exchange rate and negatively affected by the government bond yield and the policy rate. The bank lending channel is confirmed for South Africa as expansionary monetary policy such as a lower policy rate or open market purchases of government bonds would reduce the cost of borrowing by banks and increase bank deposits/reserves.
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