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Is bank lending important for the transmission of monetary policy? An overview

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  • Joe Peek
  • Eric S. Rosengren

Abstract

To improve our understanding of the role of banks in the transmission of monetary policy, the Federal Reserve Bank of Boston convened a conference in June of 1995 to consider the question, "Is Bank Lending Important for the Transmission of Monetary Policy?" That banks are an important element in the transmission process is not an issue, because monetary policy operates through the banking sector. However, the description of the exact role played by banks remains hotly disputed, with the debate focusing on the importance of the role for bank lending as a transmission channel (the lending view) distinct from the generally accepted channel operating through interest rates (the money view).> Bankers, economists, and other financial specialists met to discuss whether bank lending should be considered an important component of the transmission of monetary policy. Proponents argued that changes in bank assets as well as bank liabilities influence the future course of the economy. Many economists remain skeptical of the role of banks, however, believing that a focus on interest rates or money aggregates is sufficient for understanding the transmission of monetary policy. This article presents an overview of the papers presented at the conference and the comments of their discussants.

Suggested Citation

  • Joe Peek & Eric S. Rosengren, 1995. "Is bank lending important for the transmission of monetary policy? An overview," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 3-11.
  • Handle: RePEc:fip:fedbne:y:1995:i:nov:p:3-11
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    References listed on IDEAS

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    1. Kim B. Clark & Lawrence H. Summers, 1979. "Labor Market Dynamics and Unemployemnt: A Reconsideration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 10(1), pages 13-72.
    2. Blanchard, Olivier J, 1984. "The Lucas Critique and the Volcker Deflation," American Economic Review, American Economic Association, vol. 74(2), pages 211-215, May.
    3. George L. Perry, 1970. "Changing Labor Markets and Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 1(3), pages 411-448.
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    Keywords

    Bank loans ; Monetary policy;

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