Financial Frictions and the Monetary Transmission Mechanism: Theory, Evidence and Policy Implications
67 Pages Posted: 14 Jan 2003
Date Written: January 2002
This paper provides a brief survey of the role of financial frictions in the monetary transmission mechanism. After noting some of the key stylised facts that any model of the transmission mechanism must be consistent with, we discuss both the classical interest rate channel and the credit and bank lending channels of monetary transmission. We then review the empirical evidence relating to the relative importance of these channels. Finally we consider what impact the presence of significant financial frictions might have on the conduct of monetary policy.
Keywords: Monetary Policy, Transmission Mechanism, Credit Channel, Bank-lending Channel
JEL Classification: E52, E58, E44
Suggested Citation: Suggested Citation