How monetary policy affects the economy is a central topic of debate in macroeconomics. The bank lending channel is one approach that emphasises the role of banks. Banks are important because of asymmetric information in the financial market. Banks are assumed to be better at handling...

Using Swedish monthly data for the period 1980:1 to 1994:3, a set of questions motivated by the literature on the lending channel of monetary policy is addressed. The main results are: Regulations on banks portfolio decisions that were in force up to 1985 seem effective in that bank lending move...