Working Paper
The balance sheet channel
Abstract: In this paper, we study the role of the credit channel of monetary policy in a synthesis model of the economy. Through the use of a well-specified banking sector and a regulatory capital constraint on lending, we provide an alternate mechanism that can potentially explain the periods of asymmetry in monetary policy without appealing to ad-hoc central bank preferences. This is accomplished through the characterization of the external finance premium that includes bank leverage and systemic risk.
Keywords: Monetary policy;
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Bibliographic Information
Provider: Federal Reserve Bank of Boston
Part of Series: Supervisory Research and Analysis Working Papers
Publication Date: 2008
Number: QAU08-7