Chapter

Monetary Policy Transmission and the Financial System in Germany

Andreas Worms

in The German Financial System

Published in print March 2004 | ISBN: 9780199253166
Published online January 2005 | e-ISBN: 9780191601651 | DOI: http://dx.doi.org/10.1093/0199253161.003.0006
 Monetary Policy Transmission and the Financial System in Germany

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After presenting evidence on the overall effects of monetary policy on output and inflation in Germany, this chapter discusses different monetary transmission channels. It concentrates specifically on the ‘credit channel’, i.e. on the role of financial factors for monetary transmission, and stresses that the institutional structure of the German banking system is crucial for understanding the reaction of bank lending to monetary policy: Contrary to many other countries, small banks in Germany do not reduce lending more strongly than large banks in response to a restrictive monetary policy because they usually belong to a banking network (the savings banks’ sector or the cooperative sector) with close inter-bank links to large head institutions. This observation is in line with the notion that these small German banks, in particular, often serve as ‘house-banks’ to their customers and that an implicit insurance against restrictive monetary policy shocks may be part of such a close lending relationship.

Keywords: bank lending; banking networks; credit channel; house-bank/hausbank; interbank links; monetary policy; monetary transmission

Chapter.  15891 words.  Illustrated.

Subjects: Financial Markets

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