Monetary policy and credit conditions: evidence from the composition of external finance
In this paper, the authors use the relative moments in bank loans and commercial paper to provide evidence on the existe nce of a loan-supply channel of monetary-policy transmission. The author s find that tighter monetary policy leads to a shift in firms' mix of external financing: commercial paper issuance rises while bank loans fall. This suggests that contractionary policy can indeed reduce lo an supply. Furthermore, such shifts in loan supply seem to affect investment, even controlling for interest rates and output. Copyright 1993 by American Economic Association.
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