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Consumer Credit, Liquidity and the Transmission Mechanism of Monetary Policy

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Author Info
Ryan R. Brady () (United States Naval Academy)

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Abstract

That the lending channel is alive and well for consumer lending is at first glance a compelling notion given the growth in consumer credit. However, this paper demonstrates with disaggregated monthly and quarterly consumer credit data that households are awash in liquidity. Contrary to assumptions motivating the lending channel, households are not constrained in accessing credit from any lender (or in any form) in response to a monetary shock. The findings of this paper have important implications for research on the monetary transmission mechanism beyond the lending channel and for business cycle research in general.

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File URL: http://www.usna.edu/EconDept/RePEc/usn/wp/usnawp20.pdf
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Paper provided by United States Naval Academy Department of Economics in its series Departmental Working Papers with number 20.

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Length: 41 pages
Date of creation: Dec 2007
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Handle: RePEc:usn:usnawp:20

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  14. Valerie A. Ramey & Daniel J. Vine, 2005. "Tracking the source of the decline in GDP volatility: an analysis of the automobile industry," Finance and Economics Discussion Series 2005-14, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  16. Peek, Joe & Rosengren, Eric S & Tootell, Geoffrey M B, 2003. " Identifying the Macroeconomic Effect of Loan Supply Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 931-46, December.
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  20. Donald Cox & Tullio Japelli, 1993. "The Effect Of Borrowing Constraints On Consumer Liabilities," Boston College Working Papers in Economics 228, Boston College Department of Economics.
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  22. Dynan, Karen E. & Elmendorf, Douglas W. & Sichel, Daniel E., 2006. "Can financial innovation help to explain the reduced volatility of economic activity?," Journal of Monetary Economics, Elsevier, vol. 53(1), pages 123-150, January. [Downloadable!] (restricted)
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  23. Kashyap, Anil K & Stein, Jeremy C & Wilcox, David W, 1993. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance," American Economic Review, American Economic Association, vol. 83(1), pages 78-98, March. [Downloadable!] (restricted)
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  24. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February. [Downloadable!] (restricted)
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