Alternative Specifications of Bank Lending in France and Germany: Theory, Evidence, and Policy Implications

  • Robert E. KrainerEmail author
Conference paper


In this chapter, I compare a capital budgeting model of bank lending based on stock valuations to a supply/demand model based on an interest rate channel for France and Germany using non-nested hypothesis tests and omitted variables tests. For France, the results of these two statistical tests indicate a strong rejection of the supply/demand model with an interest rate channel and non-rejection of the capital budgeting model. The results for Germany are mixed. For Monetary Financial Institutions, the non-nested hypothesis test and omitted variables test rejected both models. For the banking sector of Monetary Financial Institutions, both tests rejected the supply/demand model but did not reject the capital budgeting model. Do these results have any implications for policy? If volatility in share prices leads to volatility in bank lending which in turn leads to volatility in real economic activity, then governments may want to begin thinking of ways to dampen the volatility in the stock market.


Stock Market Monetary Policy Central Bank Euro Area Bank Lending 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.



I would like to thank Colin Mayer, Henri Pages, Natacha Valla, Hubert Kempf, Ted Azarmi, Mathias Moerch, and seminar participants at the 31st SUERF Colloquium & Baffi Finlawmetrics Conference for helpful suggestions and comments on earlier versions of this paper. They are not responsible for any errors that might remain. I am grateful for the financial support provided by the Banque de France and Hochschule Heilbronn. The views expressed in this paper are not necessarily those of the Banque de France.


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Copyright information

© Springer International Publishing Switzerland 2016

Authors and Affiliations

  1. 1.University of Wisconsin-MadisonMadisonUSA

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