Credit channel effects in the monetary transmission mechanism

Quarterly Bulletin 2001 Q4
Published on 01 December 2001

By Simon Hall of the Bank’s International Finance Division.

Economic models often assume that the impact on the wider economy of changes in financial conditions can be summarised by a relatively limited range of financial variables, such as risk-free interest rates and long-term government bond rates. But changes in financial conditions can at times have important effects, which these variables do not necessarily indicate. This article reviews so-called ‘credit channel’ models, which consider how changes in the financial positions of lenders and borrowers can affect spending in the economy. These models provide a useful framework for analysing some potentially important interactions between the monetary stability and financial stability objectives of central banks. Subsequent articles in this Bulletin use a specific ‘credit channel’ model to illustrate the potential for these interactions in the UK corporate and household sectors.

PDFCredit channel effects in the monetary transmission mechanism


Other Quarterly Bulletin 2001 Q4 articles

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