The importance of the bank-lending channel in Estonia: evidence from micro-economic data

The paper studies the importance of the bank-lending channel in Estonia. The results from the descriptive evidence suggest that there is a significant share of bank dependent borrowers in Estonia, but the impact of a monetary policy shock on the loan supply of banks seems to be ambiguous. The empirical analysis provides evidence in favour of the bank-lending channel in Estonia. First, well-capitalized banks seem to experience a smaller outflow of deposits after a monetary contraction. Second, the liquidity position of banks seems to be an important determinant of the loan supply suggesting that more liquid banks are able to maintain their loan portfolios, while less liquid banks must reduce their loan supply after a monetary policy contraction. This finding is consistent with the evidence for the euro area, where liquidity is also the most important determinant of the loan supply.