Browsing by Subject "banking sector"

Over the past decade, central banks have engaged in strong monetary stimulus in response to the aftermath of the financial crisis that began in 2007. On one hand, expansionary monetary policy has enabled economies to return to a growth path, but on the other hand, it has also artificially inflated financial securities prices. While monetary policy has been widely studied from the perspective of real economic, the evidence of its effects on financial intermediates, namely the banking sector, is still limited. This topic has important policy implications, due to banks’ ability to generate adequate profits being relevant for the sustainability of the banking system and, as such, for its capacity to provide sufficient credit to the economy and protect depositors’ funds. The purpose of this study is to measure and reflect on the relationship between these two entities. In monetary policy research, the structured vector autoregressive (SVAR) analysis is widely used to interpret reactions of economic variables to structured shocks. Various identification strategies can be employed to ascertain structured shocks. One, quite robust identification approach is to utilize characteristics of the data and obtain a statistical identification approach. This identification method has advantages over others that seek to specify the model a priori based on restrictions on the shock dynamics. Imposing such restrictions in advance is not unambiguous. Usually, prior restrictions seek support from economic theory. Eventually, the results and reactions of variables to shocks can be interpreted using impulse responses. The empirical analysis of this study was conducted using a Bayesian SVAR model. The model was statistically identified, assuming non-Gaussian error terms. Estimation was performed using a Markov Chain algorithm, more specifically a Non-U-Turn Sampler (NUTS), which allows for efficient estimation of multiple chains simultaneously. The analysis partly supports previous dichotomic evidence. Based on the impulse responses, an unconventional monetary policy shock temporarily increased the value of the banking variable by approximately 1%. This supports previous research evidence that negative interest rate effects can be compensated for by changes in business models and by making non-interest-dependent businesses more profitable.