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Financial frictions and the monetary transmission mechanism: theory; evidence and policy implications

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Author Info
Charles Bean () (Bank of England, Threadneedle Street, London EC2R 8AH, United Kingdom.)
Jens D.J. Larsen () (Bank of England, Threadneedle Street, London EC2R 8AH, United Kingdom.)
Kalin Nikolov () (Bank of England, Threadneedle Street, London EC2R 8AH, United Kingdom.)

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Abstract

This paper provides a brief survey of the role of financial frictions in the monetary transmission mechanism. After noting some of the key stylised facts that any model of the transmission mechanism must be consistent with, we discuss both the classical interest rate channel and the credit and bank lending channels of monetary transmission. We then review the empirical evidence relating to the relative importance of these channels. Finally we consider what impact the presence of significant financial frictions might have on the conduct of monetary policy. JEL Classification: E52; E58; E44.

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Paper provided by European Central Bank in its series Working Paper Series with number 113.

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Length: 67 pages
Date of creation: Jan 2002
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Handle: RePEc:ecb:ecbwps:20020113

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Keywords: Monetary policy; transmission mechanism; credit channel; bank-lending channel.;

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Pierre-Richard Agénor & Peter Montiel, 2008. "Monetary Policy Analysis in a Small Open Credit-Based Economy," Open Economies Review, Springer, vol. 19(4), pages 423-455, September. [Downloadable!] (restricted)
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  2. Tatiana Kirsanova & Mathan Satchi & David Vines, 2004. "Monetary Union: Fiscal Stabilisation in the Face of Asymmetric Shocks," Money Macro and Finance (MMF) Research Group Conference 2004 86, Money Macro and Finance Research Group. [Downloadable!]
    Other versions:
  3. Cornelia Holthausen & Jean-Charles Rochet, 2002. "Efficient pricing of large value interbank payment systems," Working Paper Series 184, European Central Bank. [Downloadable!]
    Other versions:
  4. Alberto Humala, 2005. "Interest rate pass-through and financial crises: do switching regimes matter? the case of Argentina," Applied Financial Economics, Taylor and Francis Journals, vol. 15(2), pages 77-94, January. [Downloadable!] (restricted)
  5. George W. Evans & Seppo Honkapohja, 2002. "Monetary policy; expectations and commitment," Working Paper Series 124, European Central Bank. [Downloadable!]
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  6. Jean-Bernard Chatelain, 2002. "Structural modelling of investment and financial constraints: Where do we stand?," Research series 200205-9, National Bank of Belgium. [Downloadable!]
  7. Richhild Moessner, 2006. "Optimal monetary policy with uncertainty about financial frictions," Working Paper Series 639, European Central Bank. [Downloadable!]
  8. Tatiana Kirsanova & David Vines & Mathan Satchi & Simon Wren-Lewis, 2005. "Optimal Fiscal Policy Rules in a Monetary Union," Money Macro and Finance (MMF) Research Group Conference 2005 40, Money Macro and Finance Research Group. [Downloadable!]
    Other versions:
  9. Jean-Bernard Chatelain, 2003. "Structural Modelling of FinancialConstraints on Investment: Where Do WeStand?," Post-Print halshs-00112522_v1, HAL. [Downloadable!]
  10. Aron, Janine & Muellbauer, John, 2006. "Review of Monetary Policy in South Africa: 1994-2004," CEPR Discussion Papers 5831, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  11. Jorge Roldos, 2006. "Disintermediation and Monetary Transmission in Canada," IMF Working Papers 06/84, International Monetary Fund. [Downloadable!]
  12. Giancarlo Corsetti & Luca Dedola, 2002. "From the ERM to the Euro: new evidence on economic and policy convergence among EU countries," Working Paper Series 176, European Central Bank. [Downloadable!]
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  13. M S Mohanty & Philip Turner, 2008. "Monetary policy transmission in emerging market economies: what is new?," BIS Papers chapters, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 1-59 Bank for International Settlements. [Downloadable!]
  14. Livio Stracca, 2007. "Should we take inside money seriously?," Working Paper Series 841, European Central Bank. [Downloadable!]
  15. Reimo Juks, 2004. "The importance of the bank-lending channel in Estonia: evidence from micro-economic data," Bank of Estonia Working Papers 2004-6, Bank of Estonia, revised 11 Nov 2004. [Downloadable!]
  16. Massimo Caruso, 2004. "Monetary Policy Impulses, Local Output and the Transmission Mechanism," Temi di discussione (Economic working papers) 537, Bank of Italy, Economic Research Department. [Downloadable!]
  17. Andreas Beyer & Roger E. A. Farmer, 2002. "Natural rate doubts," Working Paper Series 121, European Central Bank. [Downloadable!]
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  18. Carsten Detken & Alistair Dieppe & Jerome Henry & Frank Smets & Carmen Marin, 2002. "Model uncertainty and the equilibrium value of the real effective euro exchange rate," Working Paper Series 160, European Central Bank. [Downloadable!]
  19. Nicole Jonker, 2002. "Constructing quality-adjusted price indices: a comparison of hedonic and discrete choice models," Working Paper Series 172, European Central Bank. [Downloadable!]
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  20. Lutz Kilian & Atsushi Inoue, 2003. "On the selection of forecasting models," Working Paper Series 214, European Central Bank. [Downloadable!]
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  21. Titiana Kirsanova & David Vines & Mathan Satchi & Simon Wren-Lewis, 2005. "Inflation Persistence, Fiscal Constraints and Non-cooperative Authorities Stabilization Policy in a Monetary Union," Money Macro and Finance (MMF) Research Group Conference 2005 17, Money Macro and Finance Research Group. [Downloadable!]
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