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The Balance Sheet Channel

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  • Ethan Cohen-Cole
  • Enrique Martinez-Garcia

Abstract

In this paper, we study the role of the credit channel of monetary policy in the context of a DSGE model. Through the use of a regulated banking sector subject to a regulatory capital constraint on lending, we provide alternative interpretations that can potentially explain differences in the implementation of monetary policy without appealing to ad-hoc central bank preferences. This is accomplished through the characterization of the external finance premium as a function of bank leverage and systemic aggregate risk.

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Bibliographic Info

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 537.

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Date of creation: Dec 2009
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Handle: RePEc:chb:bcchwp:537

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Citations

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Cited by:
  1. Martin, Christopher & Milas, Costas, 2013. "Financial crises and monetary policy: Evidence from the UK," Journal of Financial Stability, Elsevier, vol. 9(4), pages 654-661.
  2. Bank for International Settlements, 2010. "Macroprudential instruments and frameworks: a stocktaking of issues and experiences," CGFS Papers, Bank for International Settlements, number 38, January.
  3. Vega, Hugo, 2012. "Financial Frictions and the Interest-Rate Differential in a Dollarized Economy," Working Papers 2012-002, Banco Central de Reserva del Perú.
  4. Vega, Hugo & Vega, Marco, 2012. "Intermediación financiera y macroeconomía," Revista Moneda, Banco Central de Reserva del Perú, issue 150, pages 20-23.
  5. Carrera, Cesar & Vega, Hugo, 2012. "Interbank Market and Macroprudential Tools in a DSGE Model," Working Papers 2012-014, Banco Central de Reserva del Perú.

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