The purpose of this paper is to explore the effect of monetary policy on the lending behaviour of commercial banks in Zambia using bank-level data.
Dynamic panel data econometric analysis is used to uncover the evidence of monetary transmission mechanism in Zambian banking industry. Other specifications are used as robustness checks.
Contrary to received evidence, the authors find that the bank lending channel in Zambia operates mainly through large banks. The effect of monetary policy on medium-sized banks is moderate while it is virtually non-existent for smaller banks. Furthermore, the data does not show evidence of relationship lending for smaller banks.
Overall, the findings of this investigation suggest that price signals, rather than quantity aggregates, matter the most in the transmission of monetary policy in Zambia. The results therefore lend support to the central bank’s recent shift in monetary policy framework from using monetary aggregates to interest rate targeting as a means to strengthen effectiveness of monetary policy.
JEL Classification — C23, E52, O550
Disclaimer: The views expressed in this paper are the sole responsibility of the authors and any errors or omissions should not be attributed to the African Development Bank Group, International Monetary Fund or the respective Board of Directors of these institutions.
Simpasa, A., Nandwa, B. and Nabassaga, T. (2015), "Bank lending channel in Zambia: empirical evidence from bank level data", Journal of Economic Studies, Vol. 42 No. 6, pp. 1159-1174. https://doi.org/10.1108/JES-10-2014-0172Download as .RIS
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