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Bank procyclicality, credit crunches, and asymmetric monetary policy effects: a unifying model

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  • Robert R. Bliss
  • George G. Kaufman

Abstract

Much concern has recently been expressed that both large, procyclical changes in bank assets and \"credit crunches\" caused by bank reluctance to expand loans during recessions contribute to economic instability. These effects are difficult to explain using the standard textbook model of deposit expansion in which deposits are constrained only by reserve requirements. However, these effects follow easily if the model is expanded to include a second, capital constraint.

Suggested Citation

  • Robert R. Bliss & George G. Kaufman, 2002. "Bank procyclicality, credit crunches, and asymmetric monetary policy effects: a unifying model," Working Paper Series WP-02-18, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhwp:wp-02-18
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    References listed on IDEAS

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    1. Thakor, Anjan V, 1996. "Capital Requirements, Monetary Policy, and Aggregate Bank Lending: Theory and Empirical Evidence," Journal of Finance, American Finance Association, vol. 51(1), pages 279-324, March.
    2. Ben S. Bernanke & Cara S. Lown, 1991. "The Credit Crunch," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 205-248.
    3. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-439, May.
    4. Donald P. Morgan, 1993. "Asymmetric effects of monetary policy," Economic Review, Federal Reserve Bank of Kansas City, vol. 78(Q II), pages 21-33.
    5. Anil K. Kashyap & Jeremy C. Stein, 1994. "Monetary Policy and Bank Lending," NBER Chapters, in: Monetary Policy, pages 221-261, National Bureau of Economic Research, Inc.
    6. Claudio Borio & Craig Furfine & Philip Lowe, 2001. "Procyclicality of the financial system and financial stability: issues and policy options," BIS Papers chapters, in: Bank for International Settlements (ed.), Marrying the macro- and micro-prudential dimensions of financial stability, volume 1, pages 1-57, Bank for International Settlements.
    7. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
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    Cited by:

    1. Lea Zicchino, 2006. "A Model Of Bank Capital, Lending And The Macroeconomy: Basel I Versus Basel Ii," Manchester School, University of Manchester, vol. 74(s1), pages 50-77, September.
    2. Marcucci, Juri & Quagliariello, Mario, 2008. "Is bank portfolio riskiness procyclical: Evidence from Italy using a vector autoregression," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(1), pages 46-63, February.
    3. Mohd Afandi Abu Bakar* & Noormahayu Mohd Nasir & Farrah Dina Abd Razak & Nor Samsinar Kamsi & Asmalia Che Ahmad, 2018. "Provision for Bad & Doubtful Financing and Contingency Reserve Management: Assessing Resilient and Stable Islamic Banks," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 621-627:6.

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    Keywords

    Bank assets; Monetary policy;

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