Abstract
This article empirically examines the impact of monetary policy on bank loan portfolios using Taiwan macro and bank loans data for the period of January 1997 to June 2017. We estimate a vector autoregressive model (VAR Model), which includes four VAR iables, i.e., industrial production index, real exchange rate, the real loan component of commercial banks, and M2. We employ a Blanchard and Quah (1989) structural VAR approach by imposing long-run restrictions on the coefficients of the moving average representation of the VAR to identify monetary policy shocks, money (asset) demand shocks, real aggregate demand shocks, and aggregate supply shocks. We find that in the short run both business and personal loans decline significantly in response to a monetary tightening. However, we also find bank loan portfolios tend to adjust after a monetary tightening, with a decrease in the proportion of less secured loans such as consumer loans and business loans for current operations while there is an increase in the proportion of more secured loans such as personal housing loans and business investment loans. The above response pattern of bank loan portfolios show that bank managers, when facing rising costs of intermediation after a monetary tightening, reallocate bank asset portfolios toward safer loans.