Investigating the existence of a bank lending channel in Sweden

Sammanfattning: This paper uses quarterly Swedish bank-level data from 1999 to 2019 in an attempt to study the existence of a bank lending channel in Sweden. The bank lending channel is concerned with the role of credit in an economy, where it is argued that monetary policy can affect the real economy through a credit channel, in which banks shift their supply of loans to the public. The bank lending channel is hence part of the broader credit channel, where the external finance premium decides how large of an impact the bank lending channel actually has on the economy. Using a Vector Error Correction Model, the short- and long-run dynamics of the bank lending channel is observed in this paper. The paper finds statistically significant evidence for the existence of a bank lending channel in Sweden by primarily observing the Stockholm Interbank Offered Rate (STIBOR) and the supply of loans made by Swedish banks to the public. By using the Johansen test for cointegration, the paper estimates both the short- and long-run coefficients of the model. The long-run results are in line with the empirical literature, where STIBOR and real GDP are both statistically significant at the 1% level.