Curtailing the black box: German banking groups in the transmission of monetary policy

The paper examines the role of portfolio decisions of German banking groups in the transmission of monetary policy. A small econometric model is augme nted with segregated bank balance-sheet variables in order to study potenti ally different effects of tight money on these variables. The results provi de evidence for banks playing an active role in the transmission process an d are beneficial for two fields of research: The findings indicate sectoral differences of monetary policy in line with transmission models based on i nformational frictions. In addition, the results lend econometric support t o the existence of close bank-customer ties for certain banking groups in G ermany: Whereas large banks adjust their credit position markedly following a monetary shock, the smaller savings banks and credit cooperatives seem t o shield their customers from the brunt of a policy tightening. (C) 2001 El sevier Science B.V. All rights reserved.