The Role of Uncertainty in the Transmission of Monetary Policy Effects on Bank Lending
Before going into the details of the article let us first have a look at the brief introduction of the article’s subject. While looking at the title of the article it seems difficult to understand the subject of the article. It has three factors uncertainty due to changes, stances of monetary policy and financial sector and third: effect on bank’s lending behavior. We can better understand it by saying that a bank’s lending behavior depends on the uncertainty in the financial sector as well as on stance of the monetary policy. Thus the article says that due to uncertainty in the financial sector transmission mechanism of monetary policy gets affected which leads to an increase in the bank lending.
The article has used quantitative research methodology to analyze the data gathered from the banking sector since 1986 – 2000. In this report further we would be analyzing whether the article is appropriate enough to take place in a leading economics journal. We would be evaluating the research topic and research methodology as well as the results provided by the authors to find the answer of our question. Some comments after reading the article are provided below:
1.
First of all, the paper has a difficult title to understand. I am not saying that one cannot understand it but if the authors could have given the simpler title it would have become easier to understand the tone and subject matter of the article with the title itself.
2.
As far as introduction part of the article is concerned it is perfectly written. To make it more understandable authors could use brief introduction of the monetary policy stances and uncertainly in the financial sector and how these two things are related with each other.
3.
Another most important thing that the article is missing is Hypotheses. Making hypotheses and then selecting one of them based on the analysis clears the research and result of the article. But to analyze the hypotheses authors would have required other research methodologies. The hypotheses can be made as given below:
I.
Uncertainty in the transmission of monetary policy doesn’t have an impact on the lending behavior of the banks.

II.
Uncertainty in the transmission of monetary policy has an impact on the lending behavior of the banks.
4.
In the last paragraph of page 3 authors have argued that the banks who have less – liquid assets i.e. weak and small or medium sized banks lend more as compared to the banks who have stronger balance sheets. These kinds of arguments require theoretical support which is not provided by the authors (Scharler & Sindermann 2012).
5.
On the other hand, in second heading “The bank lending channel” authors explained that contractionary monetary policy leads to an increase in the real interest rate thus results in increased lending. Authors have given theoretical support of Modigliani – Miller proposition that this concept opposes the proposition of the theorem. Hence, made their argument strong.
6.
As far as research methodology of the article is concerned we can see that authors have used Kashyap and Stein (KS) model to analyze the lending behavior of the banks which is an appropriate model as it is used by banks many times (Kashyap & Stein 1994). But there are some problems with the KS model as it does not include the uncertainty factor of the financial market and hence its impact on bank’s lending behavior. Authors have identified this problem and explained it clearly for the readers. To deal with this problem authors have used modified bivariate model and included the factor of financial sector uncertainty which is σ (M) t
. This clarification of the research methodology before applying the KS model makes readers aware about the entire research method itself and thus becomes a strong point of the article to put it in a journal.
7.
The uncertainty factor σ (M) t clearly measures the uncertainty in the financial market and its impact on bank’s lending behavior. It is also helpful in measuring the balance sheet strength i.e. B t.
With the help of B t
author have identified the difference in bank’s lending behavior with the change in the liquidity of banks. Author has also identified that whether the KS study is biased with the help of σ (M) t.
8.
When a scholarly written article is analyzed; the sources of data takes greater importance. The sources from where the data is gathered must be authenticated sources of information. In our case the data is gathered from the Federal Reserve System’s
Commercial Banks and Bank Holding Company (BHC) data base which are the most authenticated sources of information for data related to banking sector in the U.S. Thus,

the justification of sources of data given by authors makes the article a strong work to take place in a journal.
9.
As far as the improvements in the KS model is concerned I can say that author has made a very essential change in the model by including financial market’s uncertainty factor (σ
(M) t
) and strength of balance sheet (B t
). This change enhanced the appropriateness of the result of study. Author should get the change published as it is an important change in the model and appropriate for the research on banking sector.
10.
In the results authors says that the factors i.e. uncertainty in the financial market and stances of monetary policies increase the bank lending behavior and they have supported their argument with the help of Gatev and Strahan’s (2003) observations i.e. due to uncertainty in the financial market investors see banks as a safe place to keep their money and that is why the deposits in the banks increase and the banks get opportunity to lend more as they have the required liquid assets. This support to the result makes the result of the article very clear.
11.
Another small but important point is that it doesn’t include diagrams. When the research question and research methodology is complex then diagrams help a lot to clearly describe the concept of the study. A diagram of the flow of information would have made the article much stronger.
12.
At the end I would like to say that the article is good enough to get published in an economics journal as it has appropriate quality and features of a scholarly written article.
Some small corrections mentioned above would have made the article stronger in presenting its results.

REFERENCES
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Bank credit in the transmission of monetary policy: A critical review of the issues and evidence”
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Heuvel, S. (2002), “ Does Bank Capital Matter for Monetary Transmission?”
Accessed on 8
April 2013, http://www.newyorkfed.org/research/epr/02v08n1/0205vand.pdf
Kashyap, A. & Stein, J. (1994), “The impact of monetary policy on bank balance sheets”,
National Bureau of Economic research , Massachusetts Avenue: Cambridge.
Ozsuca, E, A. (2005), “
An Empirical Analysis of the Bank Lending Channel in Turkey”,
Accessed on 8 April 2013, http://www.erc.metu.edu.tr/menu/series12/1205.pdf
Scharler, J. & Sindermann, F. (2012), “ Do Banks Lend Less in Uncertain Times?”
Accessed on 8
April 2013, https://editorialexpress.com/cgibin/conference/download.cgi?db_name=MMF2012&paper_id=188
Swamy, V. (2013), “Financial instability, uncertainty and bank lending behavior”,
International journal of Banking and finance, 9(4), 1- 22.
University Writing Center (2011), “ Analyzing scholarly articles”,
Viewed on 8 April 2013, http://writingcenter.tamu.edu/2005/types-communication/academic-writing/analyzing-scholarlyarticles/