The monetary policy pass-through mechanism: Is the search-for-yield incentive at work?
Abstract The paper investigates the possible mechanism behind the link between monetary policy and bank lending/risk-taking behaviors. Using a sample of Vietnamese commercial banks during 2007–2019, we find that the impact on bank output associated with monetary policy shocks is attributable to bank...
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| Format: | Article |
| Language: | English |
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Springer Nature
2023-11-01
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| Series: | Humanities & Social Sciences Communications |
| Online Access: | https://doi.org/10.1057/s41599-023-02425-z |
| _version_ | 1797415725779910656 |
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| author | Japan Huynh |
| author_facet | Japan Huynh |
| author_sort | Japan Huynh |
| collection | DOAJ |
| description | Abstract The paper investigates the possible mechanism behind the link between monetary policy and bank lending/risk-taking behaviors. Using a sample of Vietnamese commercial banks during 2007–2019, we find that the impact on bank output associated with monetary policy shocks is attributable to banks’ incentives to search for yield. Concretely, if interest rates remain lower amid monetary expansions, banks are likely to expand their lending activities more aggressively and take more risks to offset their reduced revenues. Moreover, this crucial supply-side effect is also at work for the bank liquidity creation channel of monetary policy transmission. Accordingly, we document that demotivated banks appear to undermine the impact of monetary policy on the core function of banks in creating liquidity to the real economy. Our finding is robust against a series of alternative monetary policy indicators, different bank output measures, multiple search-for-yield proxies, and substitute econometric methodologies. In sum, as the monetary policy pass-through transmission through the key banking channels is found due to banks’ own decisions, monetary authorities need to take this underlying mechanism into account when setting their monetary policy. |
| first_indexed | 2024-03-09T05:53:41Z |
| format | Article |
| id | doaj.art-d5280c3123654e299243bce4b2ca0192 |
| institution | Directory Open Access Journal |
| issn | 2662-9992 |
| language | English |
| last_indexed | 2024-03-09T05:53:41Z |
| publishDate | 2023-11-01 |
| publisher | Springer Nature |
| record_format | Article |
| series | Humanities & Social Sciences Communications |
| spelling | doaj.art-d5280c3123654e299243bce4b2ca01922023-12-03T12:15:41ZengSpringer NatureHumanities & Social Sciences Communications2662-99922023-11-0110111210.1057/s41599-023-02425-zThe monetary policy pass-through mechanism: Is the search-for-yield incentive at work?Japan Huynh0Faculty of Finance and Banking, Ho Chi Minh City Open UniversityAbstract The paper investigates the possible mechanism behind the link between monetary policy and bank lending/risk-taking behaviors. Using a sample of Vietnamese commercial banks during 2007–2019, we find that the impact on bank output associated with monetary policy shocks is attributable to banks’ incentives to search for yield. Concretely, if interest rates remain lower amid monetary expansions, banks are likely to expand their lending activities more aggressively and take more risks to offset their reduced revenues. Moreover, this crucial supply-side effect is also at work for the bank liquidity creation channel of monetary policy transmission. Accordingly, we document that demotivated banks appear to undermine the impact of monetary policy on the core function of banks in creating liquidity to the real economy. Our finding is robust against a series of alternative monetary policy indicators, different bank output measures, multiple search-for-yield proxies, and substitute econometric methodologies. In sum, as the monetary policy pass-through transmission through the key banking channels is found due to banks’ own decisions, monetary authorities need to take this underlying mechanism into account when setting their monetary policy.https://doi.org/10.1057/s41599-023-02425-z |
| spellingShingle | Japan Huynh The monetary policy pass-through mechanism: Is the search-for-yield incentive at work? Humanities & Social Sciences Communications |
| title | The monetary policy pass-through mechanism: Is the search-for-yield incentive at work? |
| title_full | The monetary policy pass-through mechanism: Is the search-for-yield incentive at work? |
| title_fullStr | The monetary policy pass-through mechanism: Is the search-for-yield incentive at work? |
| title_full_unstemmed | The monetary policy pass-through mechanism: Is the search-for-yield incentive at work? |
| title_short | The monetary policy pass-through mechanism: Is the search-for-yield incentive at work? |
| title_sort | monetary policy pass through mechanism is the search for yield incentive at work |
| url | https://doi.org/10.1057/s41599-023-02425-z |
| work_keys_str_mv | AT japanhuynh themonetarypolicypassthroughmechanismisthesearchforyieldincentiveatwork AT japanhuynh monetarypolicypassthroughmechanismisthesearchforyieldincentiveatwork |