Title

Bank Efficiency and the Effectiveness of Monetary Policy

Document Type

Article

Publication Title

Contemporary Economic Policy

Department

Economics

ISSN

1074-3529

Volume

26

Issue

4

DOI

10.1111/j.1465-7287.2008.00102.x

First Page

579

Last Page

589

Publication Date

10-1-2008

Abstract

Advances in information technology and bank consolidation have altered the way banks operate by necessitating that banks control costs and provide services efficiently to remain competitive. Given the unique role bank operations play in the transmission of monetary policy, a key unresolved question is whether bank efficiency alters monetary policy outcomes. Using a stochastic frontier approach to measure cost-efficiency and panel data of U.S. bank balance sheets, we show that banks with greater cost-efficiency are more sensitive to monetary shocks.