THE TRANSMISSION OF INTEREST-RATE CHANGES AND THE ROLE OF BANK BALANCE SHEETS - A VAR-ANALYSIS FOR THE NETHERLANDS

We present evidence of monetary transmission in the Netherlands from a VAR-model estimated with monthly data covering the period 1979-1993. It is found that M2 and, to a lesser extent, bond holdings of banks ou tperform bank credit as leading indicators for monetary policy. Bond h oldings are adjusted almost immediately in response to an interest rat e shock. This, combined with the sluggish reaction of intermediated lo ans, may suggest that banks display buffer-stock behavior. The results for the real economy point to a fairly flat aggregate supply curve, i mplying that nominal price rigidities are important in the Dutch econo my.