Bank lending, credit shocks, and the transmission of Canadian monetary policy

Abstract

The authors use a dynamic general-equilibrium model to study the role financial frictions play as a transmission mechanism of Canadian monetary policy, and to evaluate the real effects of exogenous credit shocks. Financial frictions, which are modelled as spreads between deposit and loan interest rates, are assumed to depend on economic activity as well as on credit shocks. A general finding is that almost all of the real response to a monetary policy shock comes from the price rigidity and not the credit frictions. Credit shocks, however, do have substantial real effects on macroeconomic variables. Thus, in this model, imperfections in credit markets are responsible only for a small amplification and propagation of the real effects of monetary policy shocks.

Loan supply shocks during the financial crisis: Evidence for the Euro area

“…9 Gertler and Karadi (2011) and Gilchrist et al (2009) document similar results. In turn, Gerali et al (2010) and Atta-Mensah and Dib (2008) show that inflation rises in response to a restrictive loan supply shock, which causes an increase in the policy rate that is accompanied by a rising loan rate. The increase in inflation is somewhat puzzling.…”

“…Curdia and Woodford (2010), Gerali et al (2010), Gertler and Karadi (2011) or Atta-Mensah and Dib (2008) are examples. Meanwhile, banks are seen as issuers of shocks that drive the boom-bust cycle, instead of being only passive players that transmit macroeconomic shocks neutrally.…”

How do US credit supply shocks propagate internationally? A GVAR approach

“…introduction of securitization technology) may also be a source of positive credit supply shocks, as emphasised by e.g Peersman (2012). andAtta-Mensah and Dib (2008).…”

Unit Total Costs: An Alternative Marginal Cost Proxy for Inflation Dynamics

“…In particular, t ( t ; y t ) = t (y t =y) , where, y t is output and y is its steady state and > 0, (see also Cook 1999, Atta-Mensah andDib 2008).…”