The Role of Bank Balance Sheets in Monetary Policy Transmission: Evidence from Poland

This study investigates whether the effects of monetary policy are amplified by its impact on bank balance-sheet strength. Or, in other words, it tests whether the bank-lending channel of the monetary transmission mechanism, as reformulated by Disyatat (2011), works. To this end, panel vector autoregressions with high-frequency identification and univariate panel regressions are applied to data for Poland. Counterfactual exercises show that the analyzed channel accounts for about 23% of a decrease in lending following a monetary policy impulse. This is another piece of evidence showing that the financial accelerator works in both the nonfinancial and the financial sector. In some cases it can make the interplay between monetary and macroprudential policy nontrivial.