Monetary Policy Transmission Through The Bank Lending Channel in Vietnam

Abstract

This study explores the existence of a bank lending channel in monetary policy transmission by evaluating different interest rate instruments. Using bank-level data from 2007 to 2021 to perform empirical analysis with dynamic generalized method of moments (GMM) regressions, the study finds that monetary policy easing (or tightening) tends to increase (or decrease) the lending capacity of banks. This result confirms the existence of a bank lending channel in monetary policy transmission in Vietnam. Evidence is found through monetary policy indicators ranging from market-based lending rates to policy instruments, including refinancing rates and rediscounting rates. The study has pointed out some important policy implications from the obtained findings.