This paper argues that the terms `money view' and `credit view' are not always well defined in theoretical and empirical debates over the transmission mechanism of monetary policy. Recent models of information and incentive problems in financial markets suggest the usefulness of decomposing the transmission mechanism into two parts: one related to effects of policy-induced changes on the overall level of real costs of funds, and one related to `financial accelerator' effects stemming from impacts of policy actions on the financial positions of borrowers or intermediaries. The results presented here support the idea that the spending decisions of a significant group of borrowers are influenced by their balance sheet condition. Whether a bank-lending channel is operative is less clear, however. More micro evidence at the level of individual borrower-lender transactions is needed to resolve this question.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
4977.
Length: Date of creation: Oct 1995 Date of revision: Publication status: published as Federal Reserve Bank of St. Louis Review, vol. 77, no. 3, pp. 63-77,(May/June 1995)/ Handle: RePEc:nbr:nberwo:4977
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Find related papers by JEL classification: E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
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