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Does monetary policy lose effectiveness during a credit crunch?

  • Bijapur, Mohan
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    This article investigates the effectiveness of monetary policy during a credit crunch by estimating a vector autoregression on the US economy. We present evidence that interest rate cuts have a diminished impact on growth, due to impairment in the relationship between monetary policy and the supply of intermediated credit.

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    Article provided by Elsevier in its journal Economics Letters.

    Volume (Year): 106 (2010)
    Issue (Month): 1 (January)
    Pages: 42-44

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    Handle: RePEc:eee:ecolet:v:106:y:2010:i:1:p:42-44
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    1. Anil K Kashyap & Jeremy C. Stein & David W. Wilcox, 1992. "Monetary Policy and Credit Conditions: Evidence From the Composition of External Finance," NBER Working Papers 4015, National Bureau of Economic Research, Inc.
    2. Margaret M. McConnell & Gabriel Perez Quiros, 1998. "Output fluctuations in the United States: what has changed since the early 1980s?," Staff Reports 41, Federal Reserve Bank of New York.
    3. Stephen G. Cecchetti & Alfonso Flores-Lagunes & Stefan Krause, 2004. "Has Monetary Policy Become More Efficient? A Cross Country Analysis," NBER Working Papers 10973, National Bureau of Economic Research, Inc.
    4. Tobias Adrian & Hyun Song Shin, 2008. "Liquidity, monetary policy, and financial cycles," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 14(Jan).
    5. Morgan, Donald P, 1998. "The Credit Effects of Monetary Policy: Evidence Using Loan Commitments," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(1), pages 102-18, February.
    6. Ben S. Bernanke & Cara S. Lown, 1991. "The Credit Crunch," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 205-248.
    7. Lown, Cara & Morgan, Donald P., 2004. "The Credit Cycle and the Business Cycle: New Findings Using the Loan Officer Opinion Survey," SIFR Research Report Series 27, Institute for Financial Research.
    8. Tobias Adrian & Hyun Song Shin, 2008. "Liquidity and financial cycles," BIS Working Papers 256, Bank for International Settlements.
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