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Monetary policy and credit conditions: evidence from the composition of external finance

  • Anil K. Kashyap
  • Jeremy C. Stein
  • David W. Wilcox

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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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 154.

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Date of creation: 1991
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Handle: RePEc:fip:fedgfe:154
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  1. James H. Stock & Mark W. Watson, 1989. "New Indexes of Coincident and Leading Economic Indicators," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 351-409 National Bureau of Economic Research, Inc.
  2. Alan S. Blinder & Louis J. Maccini, 1991. "Taking Stock: A Critical Assessment of Recent Research on Inventories," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 73-96, Winter.
  3. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1989. "Corporate structure, liquidity, and investment: evidence from Japanese industrial groups," Finance and Economics Discussion Series 82, Board of Governors of the Federal Reserve System (U.S.).
  4. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  5. Christina D. Romer & David H. Romer, 1990. "New Evidence on the Monetary Transmission Mechanism," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1), pages 149-214.
  6. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
  7. King, Stephen R, 1986. "Monetary Transmission: Through Bank Loans or Bank Liabilities?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(3), pages 290-303, August.
  8. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1990. "The role of banks in reducing the costs of financial distress in Japan," Journal of Financial Economics, Elsevier, vol. 27(1), pages 67-88, September.
  9. Benjamin M. Friedman & Kenneth Kuttner, 1993. "Why Does the Paper-Bill Spread Predict Real Economic Activity?," NBER Chapters, in: Business Cycles, Indicators and Forecasting, pages 213-254 National Bureau of Economic Research, Inc.
  10. Gilson, Stuart C. & John, Kose & Lang, Larry H. P., 1990. "Troubled debt restructurings*1: An empirical study of private reorganization of firms in default," Journal of Financial Economics, Elsevier, vol. 27(2), pages 315-353, October.
  11. Benjamin M. Friedman, 1982. "Debt and Economic Activity in the United States," NBER Working Papers 0704, National Bureau of Economic Research, Inc.
  12. Fama, Eugene F., 1985. "What's different about banks?," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 29-39, January.
  13. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
  14. Benjamin M. Friedman, 1982. "Debt and Economic Activity in the United States," NBER Chapters, in: The Changing Roles of Debt and Equity in Financing U.S. Capital Formation, pages 91-110 National Bureau of Economic Research, Inc.
  15. Maccini, Louis J & Rossana, Robert J, 1981. "Investment in Finished Goods Inventories: An Analysis of Adjustment Speeds," American Economic Review, American Economic Association, vol. 71(2), pages 17-22, May.
  16. James Tobin, 1987. "Financial Intermediaries," Cowles Foundation Discussion Papers 817, Cowles Foundation for Research in Economics, Yale University.
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