Additionally, the treatment and disclosure of bad loans as “non-performing assets (NPAs)” in bank balance sheets, including the reporting of gross and net NPAs as a percentage of total loans, significantly influence the role of bank capital in the MPT process. [...] (2020) examine the role of bank capital for monetary policy transmission for the European Monetary Union and find that banks’ capital constraints impair MPT and pose a challenge to the effectiveness of the bank-lending channel and the central bank’s lender of last resort function. [...] Control variables include the change in the credit-deposit ratio, which is the first difference of the share of total credit to total deposits at the bank level, serving as a proxy for bank liquidity. [...] The first column in the table 6 presents the estimation results for the low NPA period (2002-13) and the second columns refers to the results from the high NPA phase (2014-18). [...] The Hansen J statistic, Sargan statistic, and the AR(1) and AR(2) tests confirm the validity of the model specification and the appropriateness of the instruments used, reinforcing the reliability of the GMM approach in capturing MPT dynamics.
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- Pages
- 26
- Published in
- India
Table of Contents
- MP_transmission_India_fullpaper.pdf 1
- Introduction 4
- Data and descriptive statistics 8
- Empirical strategy 11
- Estimation framework 11
- Diagnostic tests 12
- Empirical evidence 13
- Baseline results 14
- Extensions and sub-sample analyses 17
- High NPA phase vs. low NPA phase 17
- Public sector banks vs private sector banks 19
- Robustness and sensitivity tests 20
- Treasury bill rate (T-bill) for monetary policy stance 20
- Alternative estimation approach: Dynamic panel GMM estimation 21
- Concluding remarks 22
