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Federal Reserve Bank of Chicago
Working Paper Series
Bank procyclicality, credit crunches, and asymmetric monetary policy effects: a unifying model
Robert R. Bliss
George G. Kaufman
Abstract

Much concern has recently been expressed that both large, procyclical changes in bank assets and "credit crunches" caused by bank reluctance to expand loans during recessions contribute to economic instability. These effects are difficult to explain using the standard textbook model of deposit expansion in which deposits are constrained only by reserve requirements. However, these effects follow easily if the model is expanded to include a second, capital constraint.


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Robert R. Bliss & George G. Kaufman, Bank procyclicality, credit crunches, and asymmetric monetary policy effects: a unifying model, Federal Reserve Bank of Chicago, Working Paper Series WP-02-18, 2002.
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Keywords: Bank assets ; Monetary policy
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