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Bank lending, credit shocks, and the transmission of Canadian monetary policy

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  • Atta-Mensah, Joseph
  • Dib, Ali
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Abstract

The authors use a dynamic general-equilibrium model to study the role financial frictions play as a transmission mechanism of Canadian monetary policy, and to evaluate the real effects of exogenous credit shocks. Financial frictions, which are modelled as spreads between deposit and loan interest rates, are assumed to depend on economic activity as well as on credit shocks. A general finding is that almost all of the real response to a monetary policy shock comes from the price rigidity and not the credit frictions. Credit shocks, however, do have substantial real effects on macroeconomic variables. Thus, in this model, imperfections in credit markets are responsible only for a small amplification and propagation of the real effects of monetary policy shocks.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 17 (2008)
Issue (Month): 1 ()
Pages: 159-176

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Handle: RePEc:eee:reveco:v:17:y:2008:i:1:p:159-176

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Web page: http://www.elsevier.com/locate/inca/620165

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References

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Citations

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Cited by:
  1. Ali Dib & Ian Christensen, 2005. "Monetary Policy in an Estimated DSGE Model with a Financial Accelerator," Computing in Economics and Finance 2005 314, Society for Computational Economics.
  2. Eickmeier, Sandra & Ng, Tim, 2011. "How do credit supply shocks propagate internationally? A GVAR approach," Discussion Paper Series 1: Economic Studies 2011,27, Deutsche Bundesbank, Research Centre.
  3. Uluc Aysun & Ryan Brady & Adam Honig, 2009. "Financial Frictions and Monetary Transmission Strength: A Cross-Country Analysis," Working papers 2009-24, University of Connecticut, Department of Economics, revised Jun 2010.
  4. Luz Adriana Flórez & Carlos Esteban Posada & José Fernando Escobar, 2004. "El Crédito Y Sus Factores Determinantes: El Caso Colombiano (1990-2004)," BORRADORES DE ECONOMIA 002482, BANCO DE LA REPÚBLICA.
  5. Carrera, Cesar, 2010. "The Bank Lending Channel in Peru: evidence and transmission mechanism," Working Papers 2010-021, Banco Central de Reserva del Perú.
  6. Nikolay Hristov & Oliver Hülsewig & Timo Wollmershäuser, 2011. "Loan Supply Shocks during the Financial Crisis: Evidence for the Euro Area," CESifo Working Paper Series 3395, CESifo Group Munich.
  7. Chahnez Boudaya, 2005. "The effects of technological innovations on employment : a new explanation," Cahiers de la Maison des Sciences Economiques v05013, Université Panthéon-Sorbonne (Paris 1).
  8. Uluc Aysun & Ryan Brady & Adam Honig, 2011. "Financial Frictions and the Credit Channel of Monetary Transmission," Working Papers 2011-03, University of Central Florida, Department of Economics.
  9. Nathan Bedock & Dalibor Stevanovic, 2012. "An Empirical Study of Credit Shock Transmission in a Small Open Economy," CIRANO Working Papers 2012s-16, CIRANO.
  10. Scott Davis & Kevin X.D. Huang, 2011. "Optimal monetary policy under financial sector risk," Globalization and Monetary Policy Institute Working Paper 85, Federal Reserve Bank of Dallas.
  11. Pierre-Richard Agénor & Koray Alper, 2012. "Monetary shocks and central bank liquidity with credit market imperfections," Oxford Economic Papers, Oxford University Press, vol. 64(3), pages 563-591, July.
  12. Kevin x.d. Huang & J. scott Davis, 2013. "Credit Risks and Monetary Policy Trade-Offs," Vanderbilt University Department of Economics Working Papers 13-00004, Vanderbilt University Department of Economics.
  13. Luz Adriana Flórez & Carlos Esteban Posada & José Fernando Escobar, 2005. "Crédito Y Depósitos Bancariosen Colombia (1990-2004): Una Relación De Largo Plaz," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE.
  14. Surach Tanboon, 2008. "The Bank of Thailand Structural Model for Policy Analysis," Working Papers 2008-06, Economic Research Department, Bank of Thailand.
  15. Scott Davis, 2010. "The adverse feedback loop and the effects of risk in both the real and financial sectors," Globalization and Monetary Policy Institute Working Paper 66, Federal Reserve Bank of Dallas.
  16. Zhang, Hongru, 2011. "Financial Sector Shocks, External Finance Premium and Business Cycle ," Cardiff Economics Working Papers E2011/7, Cardiff University, Cardiff Business School, Economics Section.

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