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Financial frictions and the monetary transmission mechanism: theory, evidence and policy implications

Author

Listed:
  • Bean, Charles
  • Larsen, Jens D. J.
  • Nikolov, Kalin

Abstract

This paper provides a brief survey of the role of financial frictions in the monetary transmission mechanism. After noting some of the key stylised facts that any model of the transmission mechanisms must be consistent with, we discuss both the classical interest rate channel and the credit and bank lending channels of monetary transmission. We then review the empirical evidence relating to the relative importance of these channels. Finally we consider what impact the presence of significant financial frictions might have on the conduct of monetary policy JEL Classification: E52, E58, E44

Suggested Citation

  • Bean, Charles & Larsen, Jens D. J. & Nikolov, Kalin, 2002. "Financial frictions and the monetary transmission mechanism: theory, evidence and policy implications," Working Paper Series 113, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2002113
    Note: 288883
    as

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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp113.pdf
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    More about this item

    Keywords

    bank-lending channel; credit channel; monetary policy; transmission mechanism;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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