Credit rationing and endogenous monetary policy
The implication of credit rationing models states that the effect of monetary policy on output may be stronger when credit conditions are tight than when they are loose. Therefore, there may be a threshold effect on the relation between real money supply and output. Existing empirical studies on testing threshold effects ignore the fact that the monetary policy which follows optimal rules is endogenous. This article provides a test of threshold effects when monetary policy is endogenous and finds that the US aggregate data cannot provide substantial evidence of a threshold effect on the relation between money and output.
Volume (Year): 17 (2010)
Issue (Month): 5 ()
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