The Balance Sheet Channel

34 Pages Posted: 9 Dec 2013

See all articles by Ethan Cohen-Cole

Ethan Cohen-Cole

Econ One Research

Enrique Martínez-García

Federal Reserve Bank of Dallas - Research Department

Date Written: December 8, 2013

Abstract

In this paper, we study the role of the credit channel of monetary policy in the context of a DSGE model. Through the use of a regulated banking sector subject to a regulatory capital constraint on lending, we provide alternative interpretations that can potentially explain differences in the implementation of monetary policy without appealing to ad-hoc central bank preferences. This is accomplished through the characterization of the external finance premium as a function of bank leverage and systemic aggregate risk.

Keywords: Balance Sheet, External Finance Premium, Financial Accelerator

JEL Classification: E52, E58, G18, G28

Suggested Citation

Cohen-Cole, Ethan and Martinez-Garcia, Enrique, The Balance Sheet Channel (December 8, 2013). Available at SSRN: https://ssrn.com/abstract=2365048 or http://dx.doi.org/10.2139/ssrn.2365048

Ethan Cohen-Cole

Econ One Research ( email )

United States

Enrique Martinez-Garcia (Contact Author)

Federal Reserve Bank of Dallas - Research Department ( email )

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

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