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Does monetary policy lose effectiveness during a credit crunch?

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  • Bijapur, Mohan
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    Abstract

    This article investigates the effectiveness of monetary policy during a credit crunch by estimating a vector autoregression on the US economy. We present evidence that interest rate cuts have a diminished impact on growth, due to impairment in the relationship between monetary policy and the supply of intermediated credit.

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    File URL: http://www.sciencedirect.com/science/article/B6V84-4X8J669-4/2/7d98ea1fd399cd3514864816caedcf6b
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    Bibliographic Info

    Article provided by Elsevier in its journal Economics Letters.

    Volume (Year): 106 (2010)
    Issue (Month): 1 (January)
    Pages: 42-44

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    Handle: RePEc:eee:ecolet:v:106:y:2010:i:1:p:42-44

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    Web page: http://www.elsevier.com/locate/ecolet

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    Keywords: Credit crunch Monetary policy Transmission mechanism Credit channel;

    References

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    1. Morgan, Donald P, 1998. "The Credit Effects of Monetary Policy: Evidence Using Loan Commitments," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(1), pages 102-18, February.
    2. Gabriel Perez-Quiros & Margaret M. McConnell, 2000. "Output Fluctuations in the United States: What Has Changed since the Early 1980's?," American Economic Review, American Economic Association, vol. 90(5), pages 1464-1476, December.
    3. Tobias Adrian & Hyun Song Shin, 2008. "Liquidity, monetary policy, and financial cycles," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 14(Jan).
    4. Anil K. Kashyap & Jeremy C. Stein & David W. Wilcox, 1991. "Monetary policy and credit conditions: evidence from the composition of external finance," Finance and Economics Discussion Series 154, Board of Governors of the Federal Reserve System (U.S.).
    5. Lown, Cara & Morgan, Donald P., 2004. "The Credit Cycle and the Business Cycle: New Findings Using the Loan Officer Opinion Survey," SIFR Research Report Series 27, Institute for Financial Research.
    6. Tobias Adrian & Hyun Song Shin, 2008. "Liquidity and financial cycles," BIS Working Papers 256, Bank for International Settlements.
    7. Ben S. Bernanke & Cara S. Lown, 1991. "The Credit Crunch," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 205-248.
    8. Stephen G. Cecchetti & Alfonso Flores-Lagunes & Stefan Krause, 2004. "Has Monetary Policy Become More Efficient? A Cross Country Analysis," NBER Working Papers 10973, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Bijapur, Mohan, 2012. "Do financial crises erode potential output? Evidence from OECD inflation responses," Economics Letters, Elsevier, vol. 117(3), pages 700-703.
    2. Senderski, Marcin, 2011. "Justifiable Thrift or Feverish Animal Spirits: What Stirred the Corporate Credit Crunch in Poland?," MPRA Paper 43674, University Library of Munich, Germany.
    3. Bijapur, Mohan, 2013. "Are Credit Shocks Supply or Demand Shocks?," MPRA Paper 49005, University Library of Munich, Germany.
    4. Senderski, Marcin, 2011. "Justifiable thrift or feverish animal spirits: What stirred the corporate credit crunch in Poland?," MPRA Paper 56613, University Library of Munich, Germany.
    5. Hwang, Sangyeon & Im, Hyejoon, 2013. "Financial shocks and trade finance: Evidence from Korea," Economics Letters, Elsevier, vol. 120(1), pages 104-107.
    6. Bijapur, Mohan & Croci, Manuela & Zaidi, Rida, 2012. "Do Asset Regulations Impede Portfolio Diversification? Evidence from European Life Insurance Funds," MPRA Paper 54265, University Library of Munich, Germany.

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