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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 a synthesis model of the economy. Through the use of a well-specified banking sector and a regulatory capital constraint on lending, we provide an alternate mechanism that can potentially explain the periods of asymmetry in monetary policy without appealing to ad-hoc central bank preferences. This is accomplished through the characterization of the external finance premium that includes bank leverage and systemic risk.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Boston in its series Risk and Policy Analysis Unit Working Paper with number QAU08-7.

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Date of creation: 2008
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Handle: RePEc:fip:fedbqu:qau08-7

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Keywords: Monetary policy;

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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. Carrera, Cesar & Vega, Hugo, 2012. "Interbank Market and Macroprudential Tools in a DSGE Model," Working Papers 2012-014, Banco Central de Reserva del Perú.
  3. Vega, Hugo & Vega, Marco, 2012. "Intermediación financiera y macroeconomía," Revista Moneda, Banco Central de Reserva del Perú, issue 150, pages 20-23.
  4. Vega, Hugo, 2012. "Financial Frictions and the Interest-Rate Differential in a Dollarized Economy," Working Papers 2012-002, Banco Central de Reserva del Perú.
  5. Bank for International Settlements, 2010. "Macroprudential instruments and frameworks: a stocktaking of issues and experiences," CGFS Papers, Bank for International Settlements, number 38, January.

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