Bank Loans in the Monetary Transmission Mechanism

Abstract

Recent studies of the credit channel in the monetary policy transmission process show conflicting views regarding the importance of bank loans in this process. This paper examines a suspected change in the interest elasticity of bank loan demand and sides with those who conclude that bank loans are not as 'special' as they once were in the money supply process. This result is consistent with our further analysis of excess loan demand from which we conclude that banks probably were not responsible for prolonging the early 1990's recession. (E50, E52)