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More on the credit channel of monetary policy transmission: an international comparison

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  • Felix J. Lopez Iturriaga

Abstract

Evidence is provided of the credit channel as a possible way of transmitting monetary policy decisions. This is done in an international framework by comparing the reaction of non-financial companies of twelve OECD countries to changes in monetary policy. Using the interest rate as an indicator of the stance of monetary policy, it is found that the interest rate does affect firms' investment and output by altering their bank finance availability, particularly short-term finance. Results also seem to show rather different effectiveness of the monetary policy depending on the features of the financial system of each country. In those countries with a more marketoriented financial system, corporate finance relies less heavily on banks, so they are not so influenced by shifts in monetary policy as are companies of other more bank-based countries.

Suggested Citation

  • Felix J. Lopez Iturriaga, 2000. "More on the credit channel of monetary policy transmission: an international comparison," Applied Financial Economics, Taylor & Francis Journals, vol. 10(4), pages 423-434.
  • Handle: RePEc:taf:apfiec:v:10:y:2000:i:4:p:423-434
    DOI: 10.1080/09603100050031552
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    References listed on IDEAS

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    1. Alessandro Sembenelli & Laura Rondi & Fabio Schiantarelli & Brian Sack, 1993. "Firms' Financial And Real Responses To Business Cycle Shocks And Monetary Tightening: Evidence For Large And Small Italian Companies," CERIS Working Paper 199305, Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY -NOW- Research Institute on Sustainable Economic Growth - Moncalieri (TO) ITALY.
    2. Frederic S. Mishkin, 1996. "The Channels of Monetary Transmission: Lessons for Monetary Policy," NBER Working Papers 5464, National Bureau of Economic Research, Inc.
    3. Bacchetta, Philippe & Caminal, Ramon, 2000. "Do capital market imperfections exacerbate output fluctuations?," European Economic Review, Elsevier, vol. 44(3), pages 449-468, March.
    4. Charles W. Calomiris & Athanasios Orphanides & Steven A. Sharpe, 1994. "Leverage as a state variable for employment, inventory accumulation, and fixed investment," Finance and Economics Discussion Series 94-24, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. Leo De Haan & Elmer Sterken, 2006. "The impact of monetary policy on the financing behaviour of firms in the Euro area and the UK," The European Journal of Finance, Taylor & Francis Journals, vol. 12(5), pages 401-420.

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