publication . Article . Other literature type . Report . Preprint . 1995

Inside the Black Box: The Credit Channel of Monetary Policy Transmission

Ben S. Bernanke; Mark Gertler;
Open Access
  • Published: 01 Jan 1995 Journal: Journal of Economic Perspectives, volume 9, issue 4 Fall, pages 27-48
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. The authors document the responses of GDP and its components to monetary policy shocks and describe how the credit channel helps explain the facts. They discuss two main components of this mechanism, the balance sheet and bank lending channels. The authors argue that forecasting exercises using credit aggregates are not valid tests of this the...
free text keywords: jel:E52, jel:E44, jel:E51, Credit channel, Monetary conditions index, Asset price channel, Inflation targeting, Monetary base, Finance, business.industry, business, Credit crunch, Economics, Monetary economics, Interest rate channel, Monetary policy
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