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The credit channel of monetary transmission in the US: Is it a bank lending channel, a balance sheet channel, or both, or neither?

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  • Sophocles N. Brissimis

    (University of Piraeus and Bank of Greece)

  • Michalis-Panayiotis Papafilis

    (University of Piraeus)

Abstract

We develop a theoretical framework that extends the Bernanke and Blinder (1988) model to incorporate imperfect substitution between internal and external finance of firms in order to study the operation of both the bank lending and the balance sheet channels of monetary transmission in the US. Our model is used to quantify the financial accelerator effects due to the operation of these channels. Empirically, we employ multivariate cointegration techniques to identify the equilibrium relationships included in our model, and we provide evidence that only the balance sheet channel is operational for the period before and after the global financial crisis.

Suggested Citation

  • Sophocles N. Brissimis & Michalis-Panayiotis Papafilis, 2022. "The credit channel of monetary transmission in the US: Is it a bank lending channel, a balance sheet channel, or both, or neither?," Working Papers 300, Bank of Greece.
    • Handle: RePEc:bog:wpaper:300
    DOI: 10.52903/wp2022300
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    More about this item

    Keywords

    Monetary transmission mechanism; bank lending channel; balance sheet channel; financial structure; multivariate cointegration;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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