NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Banks' Exposure to Interest Rate Risk and The Transmission of Monetary Policy

Augustin Landier, David Sraer, David Thesmar

NBER Working Paper No. 18857
Issued in February 2013
NBER Program(s):   CF   ME

We show empirically that banks' exposure to interest rate risk, or income gap, plays a crucial role in monetary policy transmission. In a first step, we show that banks typically retain a large exposure to interest rates that can be predicted with income gap. Secondly, we show that income gap also predicts the sensitivity of bank lending to interest rates. Quantitatively, a 100 basis point increase in the Fed funds rate leads a bank at the 75th percentile of the income gap distribution to increase lending by about 1.6 percentage points annually relative to a bank at the 25th percentile.

A non-technical summary of this paper is available in the August 2013 NBER digest.  You can sign up to receive the NBER Digest by email.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w18857

Users who downloaded this paper also downloaded these:
Vogel, Ludwig, and Boersch-Supan w18856 Aging and Pension Reform: Extending the Retirement Age and Human Capital Formation
Bruno and Shin w18942 Capital Flows and the Risk-Taking Channel of Monetary Policy
Morck, Yavuz, and Yeung w19004 State-controlled Banks and the Effectiveness of Monetary Policy
Adelino, Schoar, and Severino w18868 House Prices, Collateral and Self-Employment
Gorodnichenko and Weber w18860 Are Sticky Prices Costly? Evidence From The Stock Market
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us