What Role do Banks play in Monetary Policy Transmission in EU Accession Countries?

After the accession of the candidate countries to the European Union in 2004, the European Central Bank will need to pursue monetary policy in an enlarged euro zone. I empirically investigate the role of banks in monetary policy transmission in the accession countries. Banks are of major importance for the financing of firms and thus the adjustment of their lending in response to monetary policy actions potentially constitutes an important channel through which monetary policy works. Banks are exposed to problems of asymmetric information therefore it is shown that a change in interest rates has distributional effects across banks facing different degrees of informational asymmetries. This paper tests the prediction that banks differ in the characteristics such as relative size, level of liquidity, capitalization and ownership structure contributing to various reactions in response to monetary tightening. JEL codes: E50, E52, G21, C23, P 34