An empirical open-economy macro model with credit

We estimate a model of the credit view of the transmission mechanism, in which the effect of movements in the exchange rate are explicit. We find, first, that changes in credit are at least as important as any other variable in explaining movements in output, prices and interest rates. This reconfir...

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Bibliographic Details
Published in:Journal of macroeconomics 1993-04, Vol.15 (2), p.203-224
Main Authors: Fackler, James S., Rogers, John H.
Format: Article
Language:English
Subjects:
Credit policy
Economic impact
Economic models
Exchange rates
Foreign exchange rates
Interest rates
Monetary policy
Open economies
Regression analysis
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Summary:We estimate a model of the credit view of the transmission mechanism, in which the effect of movements in the exchange rate are explicit. We find, first, that changes in credit are at least as important as any other variable in explaining movements in output, prices and interest rates. This reconfirms what others have found concerning the importance of credit in the transmission mechanism. Second, and more novel, we find significant effects from changes in exchange rates on credit. The results imply that the recent emphasis placed by the Federal Reserve on monitoring exchange rates has been wise.
ISSN:0164-0704
1873-152X
DOI:10.1016/0164-0704(93)90025-H