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Inside the Black Box: The Credit Channel of Monetary Policy Transmission

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  • Ben S. Bernanke
  • Mark Gertler

Abstract

The 'credit channel' theory of monetary policy transmission holds that informational frictions in credit markets worsen during tight- money periods. The resulting increase in the external finance premium--the difference in cost between internal and external funds-- enhances the effects of monetary policy on the real economy. We document the responses of GDP and its components to monetary policy shocks and describe how the credit channel helps explain the facts. We discuss two main components of this mechanism, the balance-sheet channel and the bank lending channel. We argue that forecasting exercises using credit aggregates are not valid tests of this theory.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5146.

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Date of creation: Jun 1995
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Publication status: published as Journal of Economic Perspectives, Fall 1995, vol. 9, no. 4, pp. 27-48.
Handle: RePEc:nbr:nberwo:5146

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  1. To be or not to be
    by Generico in Economista Serial Crónico on 2008-04-16 20:20:00
  2. Defending the ABCT
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