Professional Documents
Culture Documents
MAY/JUNE 1Q95
Stephen C. Cetcheth is professor of economics at Ohio State University. The author thanks Margaret Mory McConnell for able research
assistance, ond Allen Berger, Ben Bernanke, Anil Koshyap, Nelson Mark, Alan Viard and the participants at the conference for comments and
suggestions. The author also expresses gratitude to the National Stience Foundation and the Federal Reserve Bank of Cleveland for financial
and research support.
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used for differentiating between the theories. possible to compute the utility maximizing
Studies fall into two broad categories portfolio weights. These will depend on the
depending on whether they use aggregate or mean and variance of the returns.~and F,
disaggregate data. The third section discusses the moments of the consumption process,
the aggregate data, while the fourth section call these p.r, and a vector of taste parameters
describes the use of disaggregate data, A that I will label 4, and assume to be constants.
conclusion follows. The utility maximizing asset demands can be
expressed as = w*,(’~,fl ~
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the policymaker can change the real return that the shift in the w~sfor all of the assets
on the asset that is monopolistically supplied, excluding outside money are equal.
investors’ portfolio weights must adjust in An important imphcation of this tradi-
response to a policy change. tional model of the transmission mechanism
The view of financial intermediaries that involves the incidence of the investment
is implicit in this description serves to high- decline. Since there are no externalities or
light the Brainard and Tobin (1963) insight market imperfections, it is only the least
that monetary pohcy can be understood by socially productive projects that go unfunded.
focusing solely on the endogenous response The capital stock is marginally lower. But,
of investor portfolios. Understanding the given that a decline is going to occur, the
transmission mechanism requires a charac- allocation of the decline across sectors is
terization of how asset holdings change in socially efficient.
response to policy actions. This theory actually points to a measure
Second, even though there need be no of money that is rarely studied, Most empiri-
banks as we know them, there will surely be cal investigations of monetary policy trans-
intermediaries that perform the service of mission focus on M2, but the logic of the
making small business loans. The agency portfolio view suggests that the monetary
costs and monitoring problems associated base is more appropriate. It is also worth
with this type of debt will still exist, and spe- pointing out that investigators have found
cialists in evaluation will emerge. While they it extremely difficult to measure economically
will have such loans as assets, they most significant responses of either fixed or inven-
likely will not have bank deposits as liabihties. tory investment to changes in interest rates
Such entities will be brokers, and the loans that are plausibly the result of policy shifts,
will he bundled and securitized, In fact, most of the evidence that is interpreted
With this as background, it is now as supporting the money view is actually evi-
possible to sketch the two major views of the dence that fails to support the lending view.
monetary transmission mechanism. There
are a number of excellent surveys of these
theories, including Bernanke (1993a), THE LIEHDff NO ViEW:
Gertler and Gilchrist (1993), Kashyap BALANCE ~.w~rr:._;EPECTS
and Stein (l994a) and Hubbard (1995). The second theory of monetary trans-
6
As a result, I will be relatively brief in mission is the lending view, It has two parts,
my descriptions. one that does not require introduction of
assets such as hank loans, and one that does.
The first is sometimes referred to as the broad
flflE MON.EY VIEVI
lending channel, or financial accelerator, and
The first theory commonly labeled emphasizes the innpact of policy changes on
the money view, is based on the notion that the balance sheets of borrowers. It hears
reductions in the quantity of outside money substantial similarity to the mechanism oper- lerminalogy has the potenflnl to
5 create confusion here. Ihave cho-
raise real rates of return, This, in turn, ating in the money view, because it involves
sen the troditianal term for this
reduces investment because fewer profitable the impact of changes in th~real interest rate
textbook IS-tM ar ‘narrow’ money
projects are available at higher required rates on investment.
new. Ida not mean to imply that
of return—this is a movenuent along a fixed According to this view, there are credit this is the ‘monetaist’ view af the
marginal efficiency of investment schedule. market imperfections that make the calcula- transmission mechanism.
The less substitutable outside money is tion of the marginal efficiency of investment
follaw Kashyap and Stein’s
for other assets, the larger the interest schedule more complex. Due to information 99
11 4al terminology rather than
rate changes. asymmetries and moral hazard problems, as
the more common credit xiew to
There is no real need to discuss banks well as bankruptcy laws, the state of a firm’s emphasize the importance of loans
in this context, In fact, there is no reason balance sheet has implications for its ability in the erarsmissian mechanism.
to distinguish any of the “other” assets in to obtain external finance. Policy-induced lerranke and Gerfier (1989,
investors’ portfolios. In terms of the simple increases in interest rates (which are both real 19901 pravide the original thearet’
portfolio model, the money view implies and nominal) can cause a deterioration in cal underpinnings for this view.
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the firm’s net worth, by both reducing expected the quantity of loans, It is not necessary to
future sales and increasing the real value of have a specific institutional framework in
nominally denominated debt, With lower net mind to understand this, Instead, it occurs
worth, the firm is less creditworthy because it whenever loans and outside money are
has an increased incentive to misrepresent complements in investor portfolios; that is,
the riskiness of potential projects. As a result, whenever the portfolio weight on loans is a
potential lenders will increase the risk pre- negative function of the return on outside
mium they require when making a loan. The money for given means and covariances of
asymmetry of information makes internal other asset returns.no
finance of new investment projects cheaper The argument has two clear parts. First,
than external finance. there are borrowers who cannot finance
The balance sheet effects imply that the new projects except through loans, and
shape of the marginal efficiency of investment second, policy changes have a direct effect
curve is itself a function of the debt-equity on loan supply Consequently the most
ratio in the economy and can be affected by important impact of a policy innovation is
7
monetary policy In terms of a simple text- cross-sectional, as it affects the quantity of
book analysis, policy moves both the IS and loans to loan-dependent borrowers.
the LM curves. For a given change in the rate Most of the literature on the lending view
of return on outside money (which may be focuses on the implications of this mechanism
the riskless rate), a lender is less willing to in a world in which banks are the only source
lernunke, Gertler and Gilchriso
finance a given investment the more debt a of loans and whose habilities are largely
(1994) refer to this nsa financiol
potential borrower has. This points to two reservable deposits. In this case, a reduction
occebruro -since itcoases small
clear distinctions between the money and in the quantity of reserves forces a reduction
changes in interest rates no have
the lending views—the latter stresses both in the level of deposits, which must be
potentially large effects on invest-
ment and output. the distributional impact of monetary policy matched by a fall in loans. The resulting
and explains how seemingly small changes change in the interest rate on outside money
°ltmaybe particularly difficult ox dis- in interest rates can have a large impact on will depend on access to close bank deposit
tagaish these effects from those
investment (the financial accelerator). substitutes. But the contraction in bank bal-
that arise from oaryiag cyclicnlity of
Returning to the portfolio choice model, ance sheets reduces the level of loans. Lower
differentfirms’ soles and profitability.
the presence of credit market imperfections levels of bank loans will only have an impact
o See James (1987) for a discussion means that policy affects the covariance on the real economy insofar as there are
of the oniqueness of bark loans. structure of asset returns, As a result, the firms without an alternative source of
mx With nominal rigidity, a decrease in w7s will shift differentially in response to investment funds.
outside money reduces the price monetary tightening as the perceived riski- As a theoretical matter, it is not necessary
level slowly, and so the real return ness of debt issued by firms with currently to focus narrowly on contemporary banks in
to holding money increases. This high debt-equity ratios will increase relative trying to understand the different possible
channel of transmission requires 8
to that of others. ways in which policy actions have real effects.
that inoestors shift awayfrom loans As I have emphasized, bank responses to
in response. changes in the quantity of reserves are just
Koshyap and Stein (1994b) point one mechanism that can lead to a comple-
out that large banks car issue (Os mentarity between outside money and loans.
in away that insulates their hal The second mechanism articulated by As pointed out by Romer and Romer (1990),
ence sheets from contractor in proponents of the lending channel can be to the extent that there exist ready substitutes
deposits, hat small barks cannot. described by dividing the “other” assets in in bank portfohos for reservable deposits such
So long assmall banks are an investors’ portfolios into at least three cate- as CDs, this specific channel could he weak
important source xl funds far same to nonexistent,mn But it remains a real possi-
gories: outside money, “loans” and all the
hnnk’dependert firms, there will
others. Next, assume that there are firms for bility that the optimal response of investors
soIl be a honk lending channel. In
which loans are the only source of external to a policy contraction would be to reduce
other wards, for honk lending to be 0
an important part of the traesmis- funds—some firms cannot issue securities. the quantity of loans in their portfolios.
sian mechanism, credit market Depending on the solution to the portfolio The portfolio choice model also helps to
impemfectons mest be impartaet allocation problem, a policy action may make clear that the manner in which policy
far honks. directly change both the interest rate and actions translate into loan changes need not
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“54cr EMPIRICAL t
645 SSxc~xx5 54554 56.
demand for everything else. This is a reduc- Modern investigation of the impact of other things equal, this would
tion in real investment. increase saving and therefore
money on real economic activity began with
investment. lx? we can be faidy
The lending view implies that the Friedman and Schwartz (1963). In many
confident that so long as maneoary
change in portfolio weights is more complex ways, this is still the most powerful evidence policy ighteniag can caese a reces-
and in an important way There may be in support of the claim that monetary policy sian, the impact ofthe income and
some combination of balance sheet and loan plays an important role in aggregate fluctua- wealth declines will he large
supply effects. tions. Through an examination that spanned enough that inoestment will foil.
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numerous monetary regimes, they argue that of money are a combination of endogenous
apparently exogenous monetary policy actions responses to real shocks (King and Plosser,
preceded output movements. 1984) and shifts in money demand
Recent researchers use more sophisticated (Bernanke and Blinder, 1992).
statistical tools to study the correlations There have been two reactions to the
between money and income. This “money- fact that monetary aggregates provide little
income causality” literature is largely inconclu- insight into policy actions. Both begin by
sive, because it fails to establish convincingly looking at the functioning of the Federal
either that money “caused” output or the Reserve and examining how policy is actually
reverse. In the end, the tests simply establish formulated. The first, due to Bernanke and
whether measures of moneyforecast output, Blinder (1992), note that the federal funds
not whether there is causation. Given that rate is the actual policy instrument that is used
outside money—the monetary base—is less on a day-to-day basis, This suggests that
than 10 percdnt of the size of M2, it is not innovations to the federal funds rate are likely
surprising that economists find the simul- to reflect, at least in part, policy disturbances.
taneity problems inherent in the question The main justification for their conclusion
too daunting and give up. comes from examining the instittitions of how
Two pieces of evidence seem reasonably monetary policy is carried out.
persuasive in making the case that money Romer and Romer (1989) suggest a
matters. First, the Federal Reserve seems to second method. By reading the minutes of
he able to change the federal funds rate vir- the Federal Open Market Committee (FOMC)
tually without warning. (I am not arguing meetings, they have constructed a series of
that this is necessarily a good idea, just that dates on which they believe policy
it is possible.) In the very short run, these became contractionary.nT
nominal interest rate changes cannot be
associated with changes in inflationary
:55
expectations, and so they must represent
real interest rate movements, Such real To understand the shortcomings of these
interest rate changes almost surely have an two approaches, I will describe how each is
impact on real resource allocations,ra used. In the first, researchers begin by specify-
The second piece of evidence comes ing a vector autoregression. For the purposes
from the examination of the neutrahty of of the example, I will use the formulation in
money in Cecchetti (1986, 1987). In those Bernanke and Blinder’s (1992) Section IV
papers, I establish that output growth is They employ a six-variable specification with
significantly correlated with money growth the total civilian unemployment rate, the log of
at lags of up to 10 years! There are several the CPI, the federal funds rate, and the log of
possible interpretations of these findings, three bank balance sheet measures, all in real
but they strongly suggest that monetary terms: deposits, securities and loans. The
shocks have something to do with aggregate assumption is that the federal funds rate is a
56 The equinalent apen economy real fluctuations. ‘policy” variable, and so it is unaffected by all
other contemporaneous innovations,mn
observation is that in small open
economies, enchorge rates move in <51555 1515<5555~6<5554<~ 5< <I4 ~6<45555455545555444 Following Bernanke and Blinder, I esti-
45 445~<45<45,< 5 5 <<-55 <‘1w —<<55
response to changes in policy. mate the VAR with six lags using seasonally
TO ~t’opi’iawv POliCY adjusted monthly datumO Figures 1 and 2
xx Boschen and Mills (19921 describe
It stands to reason that before one can plot some interesting results from this VAR.
a related technique.
study the monetary transmission mecha- The first figure shows the estimated residuals
~° See Hamilton 11994) for a complete nism, it is necessary to identify monetary from the federal funds rate equation. The
descriptor af the methodalogy. shocks. A number of authors have argued solid vertical lines are National Bureau of
~The enact measrres and sample fol- convincingly that policy disturbances cannot Economic Research (NBER) reference cycle
low those of Krshyap and Stein be gauged by examining movements in the peaks and troughs, while the dashed vertical
(1 994rl, who kindly supplied the monetary aggregates. The reason is that the lines are the Romer and Romer dates, in tend-
data. variance in the innovations to broad measures ed to indicate the onset of contractionary
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5’ 5’’
H’
studies differences in the timing of the 5’S’ 5,5
0,1
response of aggregate quantities to presumed (‘55 i’ii’i A
policy shocks; and the third examines the 0 _____ -~ ~ ~‘/ I~rr’
behavior of interest rates. 1953 56 59 62 65 68 71 74 77 80 83 86 89 1992
Before examining the work on quantities,
2
I will discuss the use of interest rate data. ’
As is clear from the discussion in the first been taken into account. The problem with
section, the lending view does allow for this is that credit is usually just a broader
movements in market interest rates. measure of money To put it slightly differently
Furthermore, these movements are in the the balance sheet identity of the banking
same direction as those predicted by the system implies that bank assets equal bank
money view, and their magnitude depends liabilities. As Bernanke (1993b) points out,
solely on the degree of substitutability monetary aggregates are a measure of bank
between outside money and various other habihties, while credit aggregates are measures
assets. Where the two views differ is in their of hank assets. Since these are calculated
predictions for movements in the interest slightly differently the)’ will not be identical.
rate on loans. But since there is currently no But it is these technical measurement differ-
secondary market for these securities, it is ences that are likely to account for the differ-
impossible to determine the interest rate on ences in forecasting ability not anything
2 about the transmission mechanism.
these loans. ’ This implies that market interest
rates are of virtually no use in this exercise. More generally the main finding is that
There is no sense in which the behavior of credit lags output. Unfortunately, this tells
interest rates could serve to distinguish us nothing about the transmission mechanism.
between the money or lending views. The aggregate data do show that aggregate
I now turn to the work on quantities. In credit is cotantercyciicco!, hut it is easy to find
the following section, 1 examine tests involving explanations for this that are consistent with Mirxn, Rower and Weil 11994)
the relative forecasting ability of tneasures of the lending view. For example, Kiyotaki and stxdy pre-Worid War II interest
money and credit. This is followed by a dis- Moore (1993) presena a model in which indi- rates in on ottempt to address
cussion of papers that emphasize aggregate viduals must continue to service credit even these qnestmrs.
tianing relationships. after income falls, and so credit falls after in the presence ml rotioning, there
income even though it is the fundamental is tie added cowplicatinr that one
r so 4’, source of fluctuations. In the end, it is diffi- ‘aoald need observations an the
rarecr.sstma .i~a.mty
55 — — -
Ketaame cult no see how aggregate timing relationships shodonv price for a loom to a bar’
A number of papers have examined the can tell us anything at all about the way in rowor who is deemed not to he
2
ability of different financial aggregates to which monetary policy affects real activity ’ creditworthy giver the oconomic
forecast output (or unemployment) fluctua- ennironwent. Obviously, there is
tions. Ramey (1993) is a recent example. no easy way ta irfer such a price.
The main methodology here is to ask whether Aggregate ;Da.sigg ReIatia~rsships ox This point is also mode by
measures of credit are informative about The second use of aggregate data has Bemnrnke, Gerfier and Gilchnist
future output movements, once money has been to examine the response of various (1994).
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the undistributed corporate profits tax in sequence of shifts in loan demand or loan
1936 and 1937 to estimate the differences in supply My conclusion is that these studies
financing costs directly from firms’ responses fail to establish the desired result in a con-
to the institution of a graduated surtax vincing way Instead, they provide further
intended to force an increase in the dividend evidence of capital market imperfections.
payout rate. Their results, holding investment Three major studies use data on manu-
opportunities fixed, are that investment facturing firms. In the first, Gertler and
spending is affected by the level of internal Hubbard (1988) find that the impact of cash
funds only for those firms with low levels of flow on investment is higher during recessions
dividend payments and high marginal tax for firms that retain a high percentage of
rates. Furthermore, these tended to be their earnings. The second, by Kashyap,
smaller and faster growing firms. Lamont and Stein (1992), shows that during
the 1981-82 recession, the inventories of
firms without ready access to external
brructurat n<rts<ric~rton finance fell by more when their initial level
The neoclassical theory of investment of internal cash was lower. On the other
allows one to derive the complex equilibrium hand, the inventory investment behavior of
relationship among the capital stock, rates of firms with ready access to primary capital
return, future marginal value products and markets showed no evidence of liquidity
project costs that form the first-order condi- constraints. In the third, Gertler and
tions for a firm’s problem. With the appro- Gilchrist (1994) use the Quarterly Financial
priate data, it is then possible to see whether Report for Mantefacturing Corporations (QFR)
these Euler equations hold. Hubbard and to divide firms into asset-size categories and
Kashyap (1992) is an interesting use of this find that small firms account for a dispropor-
technique. Following the work of Zeldes tionate share of the decline in manufacturing
2
(1989) on consumption, they examine following a monetary shock,’
whether the ability of agricultural firms Both Kashyap and Stein (1994b) and
to meet this first-order condition depends Peek and Rosengren (forthcoming) focus on
on the extent of their collaterizable net the behavior of lenders rather than borrow-
worth. They find that during periods when ers. By examining the cyclical behavior of
farmers have high net worth, and so have banks, Kashyap and Stein hope to find evi-
better access to external financing, their dence for the importance of loan supply
investment behavior is more likely to look as shifts, The strongest result in their paper is
if it is unconstrained. that, following a monetary contraction, the
These investment studies have been very total quantity of loans held by small banks
successful in establishing the existence of falls while that of large banks does not. By
capital market imperfections as well as their contrast, Peek and Rosengren study New
likely source in information asymmetries England banks during the 1990-91 recession
arising from monitoring problems. While and find that poorly capitalized banks shrink
the work has little to say about monetary by more than equivalent institutions with
policy directly it does provide an excellent higher net worth. My interpretation is that
characterization of the distributional effects both of these show that the capital market
of changes in the health of firms’ balance imperfections commonly found to apply to
sheets regardless of the source. manufacturing firms apply to banks as well.
There are two difficulties inherent in any
attempt to establish that the important trans-
thne-ziseryes LCo.taeroc.te mission rhechanism for monetary policy
The strategy in the second set of studies shocks is through bank loan supply shifts.
‘° Oliaer and tadebesch (1994) and is to use the cross-sectional dimension to First, as described at length in the second
Bernanke, Gertler and Gilchnist identify the transmission mechanism, The section, there is the problem of empirically
11994) obtain similar results esing goal is to determine whether the reduction in identifying monetary policy Beyond this,
the Oft data as well. loans during monetary contractions is a con- there is the subtlety of distinguishing loan
94
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MAY/JUNE 1995
supply shifts from the balance sheet effects. over time. With the introduction of interstate
Is the observed reduction in loans a conse- banking and the development of more
quence of their complementarity with outside sophisticated instruments aimed at trading
money caused by the structure of the banking pools of loans, it is only the balance sheet
system, or is it the result of changes in the effects that will remain, As a result, it is
shape of the marginal efficiency of investment important to know which is the more impor-
schedule brought on by the balance sheet tant channel of monetary policy transenission.
effects? Kashyap, Lamont and Stein (1992)
suggest one possible way of distinguishing
these possibilities. If one can find a reces-
sionary period that was not preceded by a Bernanke, Ben S. “How Important is the Credit Channel in the
monetary contraction, and show that interest Transmission of Monetary Policy? A Comment,” Carnegie-Rochester
rates rose but that bank dependence was Conference Series on Public Policy 39 (December 1993) pp. 47-52.
irrelevant to individual firms’ experiences, ___________ -“Credit in the Macroeconomy,” Federol Reserve Book of
this would mean that banks are responsible New York Quarterly Review (spring 1993) pp. 50-70.
for the distributional effects induced by
__________ ond Mark Gertler. “Financial Fragility and Economic
monetary shocks. Unfortunately such
Performance,” Quarterly Journal of Economics (February 1990), pp.
evidence is not readily available.
87-114.
sSSs5555SS<55< 5<’05<5<55555<45#<vOS
___________ and Mark Gerfier “Agency Cost, Net Worth ond Business
Fluctuatians,” The American Economic Review (March 1989),
pp. 14-31. -
After a survey of the work that attempts
to distinguish theories of the monetary trans- _________ and Alan S. Blinder. “The Federal Funds Rate and the
mission mechanism, where do we stand? Channels of Monetary Transmission,” The American Economic Review
My conclusion is that the myriad studies (September 1992), pp. 901-21.
have succeeded in establishing the empirical
_________ Mark t3erfler and Simon Gilchrist. “The Financial Accelerator
importance of credit market imperfections.
and the Flight to Quality,” National Bureau af Economic Research
This means that monetary policy shifts have
Working Paper No. 4789 (July 1994).
an important distributional aspect that
cannot he addressed within the traditional Brainard, William C., and James Tobin. “Financial Intermediaries and
money view. It is the smaller and faster the Effectiveness of Monetary Cantrals,” The American Economic
growing firms that bear a disproportionate Review (May 1963), pp. 383-400.
share of the burden imposed by a recession. Boschen, John F., and leonardO. Mills. “The Effects of Countercyclical
Since these are likely to he firms with highly Monetary Policy an Maney and Interest Rates: An Evaluation of
profitable investment opportunities, this has Evidence from FOMC Documents,” working paper (1992), College of
important implications for social welfare. William and Mary.
Not only are recessions associated with
Calem, Pool, and John A. Rizza. “financing Constraints and Investrenent:
aggregate output and investment declines, New Evidencefrom Hospital Industry Data,” working paper (1994),
but the declines are inefficient. Yale University, School of Medicine, Department of Epidemiology and
Beyond this, there is the issue of distin- Public Health.
guishing the two parts of the lending view.
Do we care if we can distinguish changes in Calamiris, Charles W., Charles P. Himmelberg and Paul Wachtel.
investment opportunities resulting from “Commercial Paper and Corporate Finance: A Microecanomic
Perspective,” working paper (April 1994), Stern School of Business,
financial accelerator effects from bank loan
New York University.
supply shifts per se? Does the conclusion
have implications for the actual conduct of __________ and R. Glenn Hublmrd. “lax Policy, Internal Finance, and
monetary policy? I believe the answer is yes. Investment,” Internal Finance and Investment Evidence from the
If the complementarity of bank loans and Undistributed Corporate Praf its Tax of 1936-37, Notional Bureau of
outside money arises largely as a result of the Economic Resenrth Working Paper No. 4288 (March 1993).
financial regulatory environment, then, with Cecchetti, Stephen C. “Testing Short Run Neutrality: International
financial innovation and liberalization, these Evidence,” Review of Economics and Stotisllcs (february 1987)
effects are likely to become less important pp. 135-40.
95
I E~I[~
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_________ “Testing Short Run Neutrality,” Journal of Monetary lames, Christopher ‘Some Evidence on the Uniqueness of Bunk
Economics (May1986) pp. 409-23. loans,” Journal of Financial Economics (1987), pp. 217-36.
Christiano, Lawrence, and Martin S. Eirhenbaum. “Liquidity Effects and Koshyop, kril K., and Jeremy C. Stein. “Monetary Policy and Bank
the Monetary Transmission Mechanism,” The American Economic lending,” in N. Gregory Mankiw, ad., Monetary Policy University of
Review (May 1992) pp. 346-53. Chicago Press for the Notional Bureau of Economic Research, 1994,
pp. 221-62.
Doon, Thomas A. User’s Monual, RATS Version 3.10. VAR Econometrics, _________ and _________- “The Impact of Monetory Policy on Bank
1990. Balance Sheets,” working paper (March 1994), University of
Fama, Eugene F. “Banking in the Theory of Finnnce,’ Journalof Chicogo, Graduate School of Business.
Monetary Economics (January 1980) pp 39~57 _________- Jeremy C. Stein ond David W. Wilcox. “Monetary Policy
ond Credit Conditions: Evidence from the Composition of External
Fazzari, Steven M., R. Glenn Hubhord and Bruce C. Petersen. Finance,” The American Economic Review (Morch 1993), pp. 78-98.
“Financing Constroints and Corporate Investment,” Brookings Popers
on Economic Activity (1988:1) pp. 141-95, Owen A. Lomont and Jeremy C. Stein. “Credit Conditions
,
and the Cyclical Behavior of Inventories: A Case Study of the 1981-
Feurst, Timothy. “Liquidity Effect Models and Their Implications for 1982 Recession,” Notional Bureau of Economic Research Working
Monetary Policy,” working paper (April 1993), Bowling Green State Paper No. 42t I (November1992).
University, Department of Economics. King, Robert G., and Charles I. Plosser. “Money, Credit and Prices in A
Friedman, Benlamin M. “Discussion of ‘New Evidence on the Monetary Real Business Cycle,” The American Economic Review (June 1984),
Transmission Mechanism,” Brookings Papers on Economic Activity pp. 363-80.
(1990:1), pp. 204-9. King, Stephen R. “Monetary Transmission: Through Bank Loans or
Bank Liabilities?” Journal of Money, Creditand Bonking (August
_________and Kenneth N. Kuttnec “Economic Activity and the Short- 1986), 29g,3O3.
Term Credit Markets: An Analysis of Prices and Quantities,” Brookings Kiyotoki, Nobuhiro, ond John Moore. “Credit Cycles,” working paper
Papers on EconomicActivity (1993:2), pp. 193-266. (March 1993), London School of Economics.
Friedmon, Milton, and Anna Schwartz. A Monetary History of the United Lucas, Robert E., Jr. “Liquidity and Interest Rates,” Journal of Economic
States, 1867-1960. Princeton University Press, 1963. Theory (1990), pp. 237-64.
Gertler, Mark, and Simon Gilchrist. “Monetary Policy, Business Cycles, Miran, Jeffrey, Christina D. Romer and David Weil. “Historical
and the Behavioral Small Manufacturing Firms,” Quarterly Jaurnol of Perspectives on the Monetary Transmission Mechanism,” in N. Gregory
Economics (May 1994) pp. 309-40. Monkiw, ed., Monetary Policy. University ofChicago Press for the
Notional Bureau of Economic Research, 1994, pp. 263-306.
________ and ________- “The Role of Credit Market Imperfections Morgan, Donald P. “Theworking
Lendingpaper
View of Monetary1992),
Policy and Bank
in the Monetary transmission Mechanism: kguments and Evithnce,” Loan Cammitanents,” (December Federal
Scandinavian Journal of Economics (1993) pp. 34-64. Reseme Bank of Kansas City.
__________ and R. Glenn Hubbard. “Financial Factors in Business Oliner, Stephen, and Glenn 0. Rudebusch. ‘Is there a Bank Credit
Fluctuations,” National Bureau of Economic Research Working Paper Channel for Monetary Policy?” Board of Governors of the Federal
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