We study the transmission mechanism of monetary policy through business loans. We show that the puzzling increase of business loans following a monetary tightening is largely driven by drawdowns from existing commitments at large banks. However, contrary to the predictions of the bank lending channel, spot loans also take a considerable time to adjust to innovations. We then argue banks can reduce loan supply operating on dimensions other than just volumes and show that they indeed contract credit creation by shortening maturities of new loans in response to a tightening. Our paper illustrates the complexity of the transmission mechanism in relation to loans' contractual characteristics and borrower-lender types, with relevant implications for the conduct of monetary policy.
Santiago Barraza, Andrea Civelli y Nicola Zaniboni.
Santiago Barraza firstname.lastname@example.org