Monetary Policy Transmission and Bank Lending In South Korea and Policy Implications
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Keywords

Monetary policy transmission, Bank loans, Policy rate, Bank deposits, Exchange rate, World interest rate, 3SLS.

How to Cite

Hsing, Y. . (2014). Monetary Policy Transmission and Bank Lending In South Korea and Policy Implications. Asian Economic and Financial Review, 4(11), 1674–1680. Retrieved from https://archive.aessweb.com/index.php/5002/article/view/1297

Abstract

This paper tests the bank lending channel for South Korea based on a simultaneous-equation model consisting of the demand for and the supply of bank loans. The three-stage least squares method is employed in empirical work. The demand for bank loans is negatively associated with the lending rate and positively affected by real GDP and the corporate bond yield. The supply of bank loans has a positive relationship with the lending rate and real bank deposits and a negative relationship with the central bank policy rate, the KRW/USD exchange rate and the 10-year U.S. government bond yield. Therefore, this study finds evidence of a bank lending channel for South Korea. Expansionary monetary policy through a lower policy rate or open market purchase of government bonds to increase bank deposits/reserves would increase bank loan supply.

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