Essays on Monetary Policy Transmission: Panel Data Evidence from Korea

The thesis consists of four distinct essays examining different aspects of monetary transmission using firm and bank level data for Korea. The first essay examines the determinants of firms' capital structure using comprehensive Korean firm-level panel data. The empirical results show that small, less collateralised, riskier firms are more dependent on short-term bank finance. Particularly after the currency crisis period, banks have more concerns about firms' profitability and the level of debt in their lending practices, and firms with higher profits or lower leverage have easier access to short-term bank borrowing. When examining the impact of tight monetary policy on firms' external finance, firm size, profitability, and indebtedness have significant role in bank lending channel during the post-crisis period. The second essay examines firms' foreign currency exposure and real exchange rate balance sheet effects on firms' investments using Korean firm-Ievel data. The findings in this paper have helped uncover the elusive real exchange rate balance sheet effect in limited open economy literature. The third essay examines the impact of foreign banks on the monetary policy transmission mechanism in the Korean economy with a specific focus on the lending behavior of banks with different types of ownership. Using bank-level panel data of the banking system in Korea, we present consistent evidence on the buffering impact of the foreign banks, especially foreign bank branches including U.S. bank branches, on the effectiveness of the monetary policy transmission mechanism in Korea from the bank-lending channel perspective during the global financial crisis of2008-2009. Finally, the fourth essay empirically analyses availability of credit for small and medium firms (SMEs) based on bank-firm level data, with a particular focus on the credit policy of the central bank of Korea. Its findings can serve as a useful reference for implementing credit policy, which is being increasingly adopted by central banks since the global financial crisis.