Changes in the transmission of monetary policy during crisis episodes: Evidence from the euro area and the U.S. |
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| Institution: | 1. Economics Division, University of Southampton, United Kingdom;2. Departamento de Análisis Económico, Universidad de Zaragoza, Spain;1. School of Economics and Finance, College of Business, Massey University, Private Bag 11222, Palmerston North 4442, New Zealand;2. Department of Economics, Aristotle University, Thessaloniki 54124, Greece;1. Shih Hsin University, Taipei, Taiwan;2. National Chengchi University, Taipei, Taiwan;3. Soochow University, Taipei, Taiwan;1. University of Zurich, 203, Rämistr. 66, CH-8006 Zürich, Switzerland;2. Brunel University London, Uxbridge UB8 3PH, United Kingdom;3. European Central Bank, Kasiserstr. 29, D-60311 Frankfurt, Germany;1. Kent State University, Department of Economics, USA;2. Western Sydney University, School of Business, Australia;3. University of TAS, Tasmanian School of Business and Economics, Australia;4. CAMA, Australian National University, Australia |
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| Abstract: | This paper proposes a bank-based theoretical model for the credit market that accommodates different types of creditors. The equilibrium relationships between monetary aggregates, credit interest rates and real income are derived from banks' optimizing behavior. This model is used to theoretically establish the effects of a crisis on the bank lending channel and, more specifically, on the equilibrium relationships between the main economic and monetary variables. The model is also used to explore the potential effects of unconventional monetary policies focused on reducing risk aversion during crisis episodes. These effects are empirically assessed applying cointegration techniques to macroeconomic data of the euro area and the United States before and after the collapse of the Lehman Brothers. The results support the efficacy of unconventional measures in restoring the conventional transmission channels between monetary aggregates but shed some doubts on the ability of these measures to boost economic activity. |
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