Credit Spreads and Monetary Policy

Abstract

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Rethinking Macroeconomics: What Failed, and How to Repair It

“…Each of the underlying hypotheses, for instance, of the standard transaction demand for money are suspect: Money is not needed for transactions: credit is all that is required; the difference between the interest rate paid on CMA accounts and T-bills is determined not by monetary policy but simply by technology and competition; most transactions are, in fact, not related to income-generating activities but rather to transfers of assets. For more recent literature attempting to explain credit spreads, see Curdia and Woodford (2010). Other papers modeling the credit market include Greenwald and Stiglitz (1993), Kiyotaki and Moore (1997), and Gertler and Kiyotaki (2009). Our third hypothesis is: Changes in the financial sector affected adversely the efficiency of the credit system, and made it more vulnerable to a shock such as that which occurred.…”

Monetary Policy and Anti‐cyclical Bank Capital Regulation

“…However, it does so while disregarding the role of bank capital. Some of the papers in this strand are Curdia and Woodford (2010), Airaudo and Olivero (2016), Gilchrist, Sim, and Zakrajsek (2014), and García-Cicco and Kawamura (2014), among many others. An extensive review of the work on New-Keynesian models extended with credit frictions is beyond our current scope.…”

Lending Rate Spread Shock and Monetary Policy Arrangements: A Small Open Economy Model for ASEAN Countries

“…Goodfriend and McCallum (2007) suppose that deposit holdings are required as the medium of exchange, and add a similar constraint to 'cash in advance' for deposits. Cúrdia and Woodford (2010) assume heterogeneity in households' patience to introduce the relation between lenders and borrowers. Our concept is similar to that of Christiano et al (2008), although ours is much simpler than theirs.…”

“…To understand monetary transmissions through so-called cost channels, Ravenna and Walsh (2006) assume that firms borrow labor costs from intermediaries at the gross nominal interest rate and find a significant quantitative role of this channel. We follow Goodfriend and McCallum (2007) and Cúrdia and Woodford (2010) and posit a simple production function pertaining to the management of lending activity by the commercial bank. As we assume countries lack well-functioning securities markets and focus just on bank-based external finances, we prefer their specification to those suggested in the financial-accelerator literature, such as in Bernanke et al (1996).…”