Monetary Transmission: Through Bank Loans or Bank Liabilities?

Dissatisfaction with existing theories of monetary transmission has led investigators to seek alternative paradigms. One approach suggests that loan markets may be characterized by equilibrium credit rationing, in which case injections of reserves might enable banks to expand their loan portfolios a...

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Bibliographic Details
Published in:Journal of money, credit and banking credit and banking, 1986-08, Vol.18 (3), p.290-303
Main Author: King, Stephen R.
Format: Article
Language:English
Subjects:
Bank credit
Bank liquidity
Bank loans
Banking industry
Commercial credit
Credit
Demand loans
Economic aspects
Equilibrium
Financial institutions
Financial securities
Gross national product
Hypotheses
Loan rates
Loans
Macroeconomics
Monetary
Monetary policy
Mortgage loans
Rationing
Statistical analysis
Supply
Transmission
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Summary:Dissatisfaction with existing theories of monetary transmission has led investigators to seek alternative paradigms. One approach suggests that loan markets may be characterized by equilibrium credit rationing, in which case injections of reserves might enable banks to expand their loan portfolios and increase output even without interest rate movements. We extend the model to allow banks to hold open market assets and liabilities in addition to loans, and contrast the extended rationing model with a conventional banking model. We find limited empirical support for equilibrium rationing, but no evidence that it is a useful explanation of monetary transmission. (Printed by permission of the publisher.)
ISSN:0022-2879
1538-4616
DOI:10.2307/1992382