Corporate Finance and the Monetary Transmission Mechanism
AbstractWe analyze the transmission effects of monetary policy in a general equilibrium model of the financial sector, with bank lending and securities markets. Bank lending is constrained by capital adequacy requirements, and asymmetric information adds a cost to outside bank equity capital. In our model, monetary policy does not affect bank lending through changes in bank liquidity; rather, it operates through changes in the spread of bank loans over corporate bonds, which induce changes in the aggregate composition of financing by firms, and in banks' equity-capital base. The model produces multiple equilibria, one of which displays all the features of a "credit crunch." Copyright 2006, Oxford University Press.
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Bibliographic InfoArticle provided by Society for Financial Studies in its journal The Review of Financial Studies.
Volume (Year): 19 (2006)
Issue (Month): 3 ()
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Other versions of this item:
- Patrick Bolton & Xavier Freixas, 2000. "Corporate finance and the monetary transmission mechanism," Economics Working Papers 511, Department of Economics and Business, Universitat Pompeu Fabra.
- Bolton, Patrick & Freixas, Xavier, 2001. "Corporate Finance and the Monetary Transmission Mechanism," CEPR Discussion Papers 2892, C.E.P.R. Discussion Papers.
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
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