Weather Conditions and the Bank Lending Channel: A GMM Approach from US Banking

Abstract

An issue that has not been dealt in the literature refers to the relationship between the bank lending channel and weather conditions. This paper provides empirical evidence, for the first time, that sheds new light into the dynamic interactions between weather and bank lending, using a panel data set that includes 69 banks operating in four different regions in the US, spanning the period 1994 to 2010. The methodology of panel GMM estimator, suggested in Arellano and Bond (1991), was used. The results indicate that weather characteristics have a statistically significant effect on the size of monetary policy transmission mechanism, which is also dependent on the size of banking institutions.