Non-technical summary

Research Question

There is long-standing evidence that monetary policy affects bank loan supply and the real economy through a bank-lending channel. Yet, when central banks announce a policy rate decision, they also reveal information about their assessment of economic conditions. Recent studies show that the non-monetary information contained in monetary policy announcements has macroeconomic implications that are distinct from the conventional effects of monetary policy. Evidence shows, for instance, that the announcement of a rate hike may reflect good news about the economy, stimulating economic activity. Moreover, existing theoretical work shows that such information effects occur particularly when the announcement contains good news about the state of financial conditions. The possible presence of information effects raises the following questions: First, how do monetary policy shocks stripped of information about economic fundamentals affect bank lending? Second, does non-monetary information have autonomous effects on bank lending?

Contribution

This paper adds to research on the bank-lending channel of monetary policy transmission by considering the role of non-monetary information in central bank communication. Using micro-level data on German bank balance sheets for the period 2002-2018, we employ bank-level panel local projections to study how bank lending reacts to central bank information shocks and to “pure” monetary policy shocks, i.e., those stripped of information effects.

Results

We obtain two main findings. First, a conventional tightening in the policy rate leads to a significant decrease in the volume of bank loans to non-financial corporations. In line with the bank-lending channel of monetary policy, the decrease is stronger for relatively small banks with less liquid balance sheets. Second, we find that a policy rate tightening due to an information shock leads to a significant increase in the volume of non-financial business loans. The increase is stronger for relatively small banks with more liquid balance sheets. These results are robust to how we measure exogenous variation in monetary policy and central bank information, as well as to various choices of measurement, sample composition, statistical inference, and model specification. Our results imply, on the one hand, they imply that a lending channel of monetary policy transmission is operational in the largest economy of the euro area. On the other hand, they empirically corroborate earlier theoretical work showing that central bank information shocks are consistent with news about the state of financial conditions.