Monetary Policy and Credit Conditions: New Evidence

Abstract

A number of recent papers seek to distinguish between "money" and "credit" theories of the transmission of monetary disturbances using asymmetric information arguments. In credit models money causes output not only through the real interest rate but also through the availability of bank credit. The research described in this paper extends the work of Kashyap, Stein and Wilcox (1993), who construct a model that incorporates a relationship benefit to bank borrowing and then test the implications of the model. In this paper I extend their work by taking into account the households' demand for commercial paper, the T- bill market and the default risk of the banking sector as a determinant of the relationship benefit.

JEL Classification: E44