In the wake of the Global Crisis, several central banks have adopted unconventional monetary policies. This column presents new evidence from Japan on the transmission of monetary policy through banks’ balance sheets. Overall, the evidence suggests that bank net worth affects loan supply, that the effect depends on monetary policy and economic growth, and that this bank balance sheet channel has a significant impact on firms’ financing and investment. Exiting from unconventional monetary policies when bank balance sheets are weak could thus have a severe adverse impact on investment.
vox.eu
Monetary policy transmission via balance sheets: Evidence from Japan
Kaoru Hosono, Professor of Economics, Gakushuin University and Daisuke Miyakawa, Associate Professor of Economics, Nihon University
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