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Bank Lending, Credit Shocks, and the Transmission of Canadian Monetary Policy

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Author Info

  • Joseph Atta-Mensah
  • Ali Dib

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

Paper provided by Bank of Canada in its series Working Papers with number 03-9.

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Length: 38 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:bca:bocawp:03-9

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Postal: 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada
Phone: 613 782-8845
Fax: 613 782-8874
Web page: http://www.bank-banque-canada.ca/

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Keywords: Financial institutions; Monetary policy framework; Transmission of monetary policy;

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References

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