EconStor >
Institut für Weltwirtschaft (IfW), Kiel >
Economics: The Open-Access, Open-Assessment E-Journal - Discussion Papers >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/27469
  
Title:The "Credit-Cost Channel" of Monetary Policy. A Theoretical Assessment PDF Logo
Authors:Tamborini, Roberto
Issue Date:2008
Series/Report no.:Economics Discussion Papers / Institut für Weltwirtschaft 2008-33
Abstract:Current macro-models based on the demand-side effects of monetary policy and sticky prices account for the observed correlations between policy interest rates, output and inflation, but they fail with regard to other empirical regularities, such as the negative effects of policy shocks on real wages and profits. Moreover, the lack in these models of an explicit role of the credit market in the transmission mechanism is now regarded as a major limitation. Drawing on the modern literature on the monetary transmission mechanisms with capital market imperfections, this paper presents a model of the "credit-cost channel" of monetary policy. The thrust of the model is that firms' reliance on bank loans ("credit channel") may make aggregate supply sensitive to bank interest rates ("cost channel"), which are in turn driven by the official rate controlled by the central bank. The model is assessed theoretically by examining whether, and under what conditions, changes in the policy interest rate produce the whole pattern of the observed relationships, with no recourse to non-competitive hypotheses and frictions. This result is obtained for parameter values in the range of available consensus estimates, with a caveat concerning labour-supply elasticity to the real wage rate.
Subjects:Macroeconomics and monetary economics
monetary transmission mechanisms
credit channel
cost channel
JEL:C32
E51
Creative Commons License:http://creativecommons.org/licenses/by-nc/2.0/de/deed.en
Document Type:Working Paper
Appears in Collections:Economics: The Open-Access, Open-Assessment E-Journal - Discussion Papers

Files in This Item:
File Description SizeFormat
dp2008-33.pdf447.46 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/27469

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.