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Inside the Black Box: The Credit Channel of Monetary Policy Transmission
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The credit channel theory of monetary policy transmission holds that informational frictions in credit markets worsen during tight money periods and the resulting increase in the external finance premium enhances the effects of monetary policies on the real economy as discussed by the authors.Abstract:
The 'credit channel' theory of monetary policy transmission holds that informational frictions in credit markets worsen during tight- money periods. The resulting increase in the external finance premium--the difference in cost between internal and external funds-- enhances the effects of monetary policy on the real economy. We document the responses of GDP and its components to monetary policy shocks and describe how the credit channel helps explain the facts. We discuss two main components of this mechanism, the balance-sheet channel and the bank lending channel. We argue that forecasting exercises using credit aggregates are not valid tests of this theory.read more
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What Do a Million Observations on Banks Say about the Transmission of Monetary Policy
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References
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TL;DR: In this article, the authors argue that the style in which their builders construct claims for a connection between these models and reality is inappropriate, to the point at which claims for identification in these models cannot be taken seriously.
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Agency Costs, Net Worth, And Business Fluctuations
Ben S. Bernanke,Mark Gertler +1 more
TL;DR: The authors constructs a simple neoclassical model of intrinsic business cycle dynamics in which borrowers' balance sheet positions play an important role and shows that the agency costs of undertaking physical investments are inversely related to the entrepreneur's/borrower's net worth.
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A Monetary History of the United States
Milton Friedman,Anna J. Schwartz +1 more
TL;DR: The long-awaited monetary history of the United States by Friedman and Schwartz is in every sense of the term a monumental scholarly achievement as discussed by the authors, and the treatment of innumerable issues, large and small, have been brought to bear on the solution of complex and subtle economic issues.
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Agency Costs, Net Worth, and Business Fluctuations.
Mark Gertler,Ben S. Bernanke +1 more
TL;DR: The authors developed a simple neoclassical model of the business cycle in which the condition of borrowers' balance sheets is a source of output dynamics, and the mechanism is that higher borrower net worth reduces the agency costs of financing real capital investments.
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The Federal Funds Rate and the Channels of Monetary Transnission
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