Angela Maddaloni

Trusting the bankers: A new look at the credit channel of monetary policy☆

Monetary policy has real effects through credit supply and demand, and since these changes are mostly unobserved, the complete identification of the credit channel is generally unfeasible. Bank lending surveys by central banks, however, contain reliable quarterly information on changes in loan conditions due to bank, firm and household balance sheet strength and on changes in loan demand. Using the U.S. and the unique Euro area surveys, we find that the credit channel amplifies a monetary policy shock on GDP and prices through the balance-sheets of households, firms and banks. For corporate loans, amplification is highest through the bank lending and the borrowers balance sheet channel; for households, demand is the strongest channel (Copyright: Elsevier)

Heterogeneous Transmission Mechanism: Monetary Policy and Financial Fragility in the Eurozone

The Euro area economic activity and banking sector have shown substantial fragility over the last years with remarkable country heterogeneity. Using detailed data on lending conditions and standards, we analyse how financial fragility has affected the transmission mechanism of the single Euro area monetary policy during the crisis until the end of 2011. The analysis shows that the monetary transmission mechanism has been time-varying and influenced by the financial fragility of the sovereigns, banks, firms and households. The impact of monetary policy on aggregate output is stronger during the financial crisis, especially in countries facing increased sovereign financial distress. This amplification mechanism, moreover, operates mainly through the credit channel, both the bank lending and the non-financial borrower balance-sheet channel. Our results suggest that the bank-lending channel has been partly mitigated by the ECB nonstandard monetary policy interventions. At the same time, when looking at the transmission through banks of different sizes, it seems that, until the end of 2011, the impact of credit frictions of borrowers have not been significantly reduced, especially in distressed countries. Since small banks tend to lend primarily to SME, we infer that the policies adopted until the end of 2011 might have fall short of reducing credit availability problems stemming from deteriorated firm net worth and risk conditions, especially for small firms in countries under stress. JEL Classification: E44, E52, E58, G01, G21, G28

Conflict and Social and Political Preferences: Evidence from World War II and Civil Conflict in 35 European Countries

This paper uses new micro-level evidence from a nationally representative survey of 39,500 individuals in 35 countries to shed light on how individual experiences of conflict shape political and social preferences. The investigation covers World War II and recent civil conflict. Overwhelmingly, the results point to the negative and enduring legacy of war-related violence on political trust and perceived effectiveness of national institutions, although the effects are heterogeneous across different types (external versus internal) and outcomes (victory versus defeat) of conflict. Conflict spurs collective action, but of a dark nature, one associated with further erosion of social and political trust.