Financial Frictions and the Monetary Transmission Mechanism: Theory, Evidence and Policy Implications

Bean, Charles Richard; Larsen, Jens D.J.; Nikolov, Kalin

doi:10.2139/ssrn.356761

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Financial Frictions and the Monetary Transmission Mechanism: Theory, Evidence and Policy Implications

67 Pages Posted: 14 Jan 2003

See all articles by Charles Richard Bean

Charles Richard Bean

London School of Economics & Political Science (LSE) - Department of Economics; Bank of England

Kalin Nikolov

European Central Bank (ECB)

Date Written: January 2002

Abstract

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

Bean, Charles Richard and Bean, Charles Richard and Larsen, Jens D.J. and Nikolov, Kalin, Financial Frictions and the Monetary Transmission Mechanism: Theory, Evidence and Policy Implications (January 2002). Available at SSRN: https://ssrn.com/abstract=356761 or http://dx.doi.org/10.2139/ssrn.356761