TY  - JOUR
AU  - Bernanke,Ben S.
AU  - Blinder,Alan S.
TI  - Credit, Money, and Aggregate Demand
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2534
PY  - 1989
Y2  - June 1989
UR  - http://www.nber.org/papers/w2534
L1  - http://www.nber.org/papers/w2534.pdf
N1  - Author contact info:
Ben S. Bernanke
E-Mail: Rita.C.Proctor@frb.gov

Alan S. Blinder
Department of Economics
Princeton University
Princeton, NJ 08544-1021
Tel: 609/258-3358
Fax: 609/258-5398
E-Mail: blinder@princeton.edu
AB  - Standard models of aggregate demand treat money and credit asymmetrically; money is given a special status, while loans, bonds, and other debt instruments are lumped together in a "bond market" and suppressed by Walras' Law. This makes bank liabilities central to the monetary transmission mechanism, while giving no role to bank assets. We show how to modify a textbook IS-UI model so as to permit a more balanced treatment. As in Tobin (1969) and Brunner-Meltzer (1972), the key assumption is that loans and bonds are imperfect substitutes. In the modified model, credit supply and demand shocks have independent effects on aggregate demand; the nature of the monetary transmission mechanism is also somewhat different. The main policy implication is that the relative value of money and credit as policy indicators depends on the variances of shocks to money and credit demand. We present some evidence that money-demand shocks have become more important relative to credit-demand shocks during the 1980s.
ER  -