TY  - JOUR
AU  - Bernanke,Ben S.
AU  - Gertler,Mark
TI  - Inside the Black Box: The Credit Channel of Monetary Policy Transmission
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5146
PY  - 1995
Y2  - June 1995
UR  - http://www.nber.org/papers/w5146
L1  - http://www.nber.org/papers/w5146.pdf
N1  - Author contact info:
Ben S. Bernanke
E-Mail: Rita.C.Proctor@frb.gov, Michelle.A.Smith@frb.gov

Mark Gertler
Department of Economics
New York University
269 Mercer Street, 7th Floor
New York, NY 10003
Tel: 212/998-8931
Fax: 212/995-4186
E-Mail: mark.gertler@nyu.edu
M2  - featured in NBER digest on 1996-02-01
AB  - The 'credit channel' theory of monetary policy transmission holds that informational frictions in credit markets worsen during tight- money periods.  The resulting increase in the external finance premium--the difference in cost between internal and external funds-- enhances the effects of monetary policy on the real economy.  We document the responses of GDP and its components to monetary policy shocks and describe how the credit channel helps explain the facts. We discuss two main components of this mechanism, the balance-sheet channel and the bank lending channel.  We argue that forecasting exercises using credit aggregates are not valid tests of this theory.
ER  -