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Credit channel and credit shocks in Canadian macrodynamics - a structural VAR approach

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  • J. Safaei
  • N. E. Cameron

Abstract

The idea that financial structure and output determination may be interrelated has gone through several cycles over the past half a century since its inception at the time of the Great Depression. In its latest reincarnation as the theory of financial acceleration, it considers financial factors as propagation mechanisms for the disturbances originating in the real economy. The agency costs of credit allocation by the financial intermediaries play a central role in this theory. Financial factors have rarely been studied as potential sources of variation in the economy. This article, however, investigates the origination of disturbances from bank credit and allows for the propagation of disturbances within a relatively simple macro-dynamic system that utilizes the Structural Vector Autoregression approach The findings for the Canadian economy provide support for the 'credit view' of the monetary policy transmission mechanism. They also show that bank credit to persons affects real output in the short run, whereas bank credit to businesses does not. In other words, consumers but not the business firms appear to be credit constrained.

Suggested Citation

  • J. Safaei & N. E. Cameron, 2003. "Credit channel and credit shocks in Canadian macrodynamics - a structural VAR approach," Applied Financial Economics, Taylor & Francis Journals, vol. 13(4), pages 267-277.
  • Handle: RePEc:taf:apfiec:v:13:y:2003:i:4:p:267-277
    DOI: 10.1080/09603100110117866
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    References listed on IDEAS

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    1. Turnovsky,Stephen J., 1977. "Macroeconomic Analysis and Stabilization Policy," Cambridge Books, Cambridge University Press, number 9780521291873.
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    Cited by:

    1. Afrin, Sadia, 2017. "Monetary policy transmission in Bangladesh: Exploring the lending channel," Journal of Asian Economics, Elsevier, vol. 49(C), pages 60-80.
    2. Nathan Bedock & Dalibor Stevanovic, 2017. "An empirical study of credit shock transmission in a small open economy," Canadian Journal of Economics, Canadian Economics Association, vol. 50(2), pages 541-570, May.
    3. Leon Berkelmans, 2005. "Credit and Monetary Policy: An Australian SVAR," RBA Research Discussion Papers rdp2005-06, Reserve Bank of Australia.
    4. Abdul Majid, Muhamed Zulkhibri, 2010. "Bank-characteristics, lending channel and monetary policy in Malaysia: evidence from bank-level data," MPRA Paper 30052, University Library of Munich, Germany.
    5. repec:psc:journl:v:9:y:2017:i:4:p:323-357 is not listed on IDEAS
    6. Abdul Karim, Zulkefly & Zaidi, Mohd Azlan Shah & W.N.W, Azman-Saini, 2011. "Relative price effects of monetary policy shock in Malaysia: a svar study," MPRA Paper 38768, University Library of Munich, Germany.
    7. Maslov, Alexander, 2011. "Inflationary Handicap Of The Monetary Transmission Mechanism: Evidence From Russia," MPRA Paper 50036, University Library of Munich, Germany, revised 12 Apr 2012.

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