The Credit Channel of Monetary Policy Transmission: Evidence from Stock Returns
AbstractThis paper offers a novel test of the credit view of the monetary policy transmission mechanism using stock market returns. We identify Fed policy shocks using newspaper accounts and track daily stock prices immediately following the shocks. If the credit channel is important, then firms that are dependent on bank credit and internal funds should receive a relatively greater benefit (loss) from a Fed easing (tightening) than firms with access to nonbank credit at favorable terms. We identify ten policy shocks during the expansion of 1993-94 and the "credit crunch" period of the 1990-91 recession and find little evidence supportive of an operative credit channel. Copyright 2001 by Oxford University Press.
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Bibliographic InfoArticle provided by Western Economic Association International in its journal Economic Inquiry.
Volume (Year): 39 (2001)
Issue (Month): 1 (January)
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- den Haan, Wouter J. & Sumner, Steven W. & Yamashiro, Guy M., 2007.
"Bank loan portfolios and the monetary transmission mechanism,"
Journal of Monetary Economics,
Elsevier, vol. 54(3), pages 904-924, April.
- Den Haan, Wouter & Sumner, Steven & Yamashiro, Guy, 2004. "Banks' Loan Portfolio and the Monetary Transmission Mechanism," CEPR Discussion Papers 4725, C.E.P.R. Discussion Papers.
- Basistha, Arabinda & Kurov, Alexander, 2008. "Macroeconomic cycles and the stock market's reaction to monetary policy," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2606-2616, December.
- Burton A. Abrams & Margaret Z. Clarke & Russell F. Settle, 2003. "Do Banks Matter? A Credit View Model for Small Open Economies," Working Papers 03-13, University of Delaware, Department of Economics.
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