Abstract:We propose a new channel for the transmission of monetary policy shocks, the coordination channel. We develop a New Keynesian model in which bank lending is strategically complementary. Banks do not observe the distribution of loans but infer it using Gaussian signals. Under this paradigm, expectations of tighter credit conditions reduce banks' lending response to monetary shocks. As a result, lack of coordination and information about other banks' actions dampen monetary transmission. We test these prediction… Show more
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