The Balance Sheet Channel

Posted: 14 Jul 2021

See all articles by Ethan Cohen-Cole

Ethan Cohen-Cole

affiliation not provided to SSRN

Enrique Martínez-García

Federal Reserve Bank of Dallas - Research Department

Date Written: 2008


In this paper, we study the role of the credit channel of monetary policy in a synthesis model of the economy. Through the use of a well-specified banking sector and a regulatory capital constraint on lending, we provide an alternate mechanism that can potentially explain the periods of asymmetry in monetary policy without appealing to ad-hoc central bank preferences. This is accomplished through the characterization of the external finance premium that includes bank leverage and systemic risk.

Suggested Citation

Cohen-Cole, Ethan and Martinez-Garcia, Enrique, The Balance Sheet Channel (2008). FRB Boston Risk and Policy Analysis Unit Paper No. QAU08-7, Available at SSRN:

Ethan Cohen-Cole (Contact Author)

affiliation not provided to SSRN

No Address Available

Enrique Martinez-Garcia

Federal Reserve Bank of Dallas - Research Department ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States
214-922-5262 (Phone)


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