Is There a `Credit Channel' for Monetary Policy?

47 Pages Posted: 26 Jul 2000 Last revised: 8 Aug 2022

See all articles by R. Glenn Hubbard

R. Glenn Hubbard

Columbia University - Columbia Business School, Finance; National Bureau of Economic Research (NBER)

Date Written: December 1994

Abstract

This paper argues that the terms `money view' and `credit view' are not always well defined in theoretical and empirical debates over the transmission mechanism of monetary policy. Recent models of information and incentive problems in financial markets suggest the usefulness of decomposing the transmission mechanism into two parts: one related to effects of policy-induced changes on the overall level of real costs of funds, and one related to `financial accelerator' effects stemming from impacts of policy actions on the financial positions of borrowers or intermediaries. The results presented here support the idea that the spending decisions of a significant group of borrowers are influenced by their balance sheet condition. Whether a bank-lending channel is operative is less clear, however. More micro evidence at the level of individual borrower-lender transactions is needed to resolve this question.

Suggested Citation

Hubbard, Robert Glenn, Is There a `Credit Channel' for Monetary Policy? (December 1994). NBER Working Paper No. w4977, Available at SSRN: https://ssrn.com/abstract=226576

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