DOI: https://doi.org/10.52903/wp2022300
THE CREDIT CHANNEL OF MONETARY TRANSMISSION IN THE US: IS IT A BANK LENDING CHANNEL, A BALANCE SHEET CHANNEL, OR BOTH, OR NEITHER?
Sophocles N. Brissimis
University of Piraeus and Bank of Greece
Michalis-Panayiotis Papafilis
University of Piraeus
Abstract
We develop a theoretical framework that extends the Bernanke and Blinder (1988) model to incorporate imperfect substitution between internal and external finance of firms in order to study the operation of both the bank lending and the balance sheet channels of monetary transmission in the US. Our model is used to quantify the financial accelerator effects due to the operation of these channels. Empirically, we employ multivariate cointegration techniques to identify the equilibrium relationships included in our model, and we provide evidence that only the balance sheet channel is operational for the period before and after the global financial crisis.
Keywords: Monetary transmission mechanism; bank lending channel; balance sheet channel; financial structure; multivariate cointegration
JEL-classifications: C32, C52, E44, E51, E52
Acknowledgements: We are grateful to Nikos Magginas, Thomas Vlassopoulos, Gikas Hardouvelis and Alexandros Bechlioulis for helpful and constructive comments.
Correspondence:
Sophocles N. Brissimis
University of Piraeus and Bank of Greece
Email:sbrisimis@yahoo.gr