The Credit Channel as a Monetary Transmission Mechanism: Some Microeconometric Evidence for Switzerland

The theory on the credit channel of monetary transmission emphasizes the role of the banking system in propagating monetary shocks. In this paper we test whether, following the abrupt tightening of the Swiss National Bank at the end of the 80s, the investment cycle in the Swiss economy was amplified through the lending behaviour of Swiss banks. Using a panel-data VAR approach on a broad sample of Swiss firms we find no significant impact of monetary conditions on companies' investment behaviour during the recession of the 90s. There is no evidence for the hypothesis that the credit channel is an important monetary transmission mechanism.