Credit Rationing and Threshold Effects in the Relation between Money and Output
The possibility that the effect of monetary policy on output may depend on whether credit conditions are tight or loose can be expressed as a non-linearity in the relation between real money supply and output, of which a simple case is a threshold effect. In this case, consistent with the credit-rationing model of Blinder (1987), the monetary variable has a more powerful effect if it is below some threshold than when it is above. Testing for the importance of this threshold is straightforward if the appropriate threshold value is known a priori, but where the value is not known and must be chosen based on the sample, the testing problem becomes more difficult. We apply recently-developed tests applicable in this situation to both US and Canadian data, and find substantial evidence of a threshold effect, particularly in US data. However, the estimated threshold values are high. Copyright 1996 by John Wiley & Sons, Ltd.
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Volume (Year): 11 (1996)
Issue (Month): 4 (July-Aug.)
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