The Monetary Transmission Mechanism – an Analysis with Focus on German Banks

Abstract

The present thesis investigates the impact of European Central Bank’s (ECB) mone-tary policy measures on the lending behaviour of several German bank types by means of a structural vector autoregression (SVAR) analysis covering the past 19 years on a quarterly basis. Hence, the paper contributes to the ongoing discussion on the effect-tiveness of the monetary transmission mechanism’s channels in times of unconven-tional monetary policy regimes. The theoretical approach includes a thematic classification and presentation of the topic’s relevance, while also money as such and the corresponding creation proces-ses, including the money multiplier, are addressed. This is followed by a presentation of ECB’s toolkit for monetary policy measures and how these are expected to influence the overall price level. The functioning of the transmission mechanism is analysed as well as the effectiveness of ECB’s measures. Finally, SVAR is presented theoretically before the actual analysis and its results are displayed. The analysis yields statistically significant models which assign only little importance to ECB’s measures themselves. Rather, the lending behaviour of banks seems to be determined by them indirectly and additionally by other factors, such as the output and the demand for credit. Moreover, some distinct differences can be identified between the single bank types. In conclusion, the thesis provides further empirical evidence for the yet unsolved puzzle of how to motivate banks to increase their lending while showing various areas of possible further research.