Loan Commitments and Optimal Monetary Policy
AbstractThis paper analyzes how increased reliance on floating rate loan commitments by firms affects the optimal interest-rate-conditioned monetary policy. The analysis uses a stylized Poole-type IS-LM structure that explicitly integrates the interaction between credit and goods markets. By endogenizing the choice between traditional loans and floating-rate commitments, the model can analyze interaction between central bank monetary policy decisions and the choice of loan contract types. A key implication is that, when this joint decision problem is taken into account, the separation between the monetary and goods sectors assumed in the standard IS-LM paradigm breaks down. Copyright 1990 by Ohio State University Press.
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Bibliographic InfoArticle provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.
Volume (Year): 22 (1990)
Issue (Month): 2 (May)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879
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