Credit Traps / Efraim Benmelech, Nittai K. Bergman.

Format:

Book

Author/Creator:

Benmelech, Efraim.

Contributor:

National Bureau of Economic Research.

Bergman, Nittai K.

Series:

Working Paper Series (National Bureau of Economic Research) no. w16200.

NBER working paper series no. w16200

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2010.

Summary:

This paper studies the limitations of monetary policy transmission within a credit channel frame- work. We show that, under certain circumstances, the credit channel transmission mechanism fails in that liquidity injections by the central bank into the banking sector are hoarded and not lent out. We use the term 'credit traps' to describe such situations and show how they can arise due to the interplay between financing frictions, liquidity, and collateral values. Our analysis offers a characterization of the problems created by credit traps as well as potential solutions and policy implications. Among these, the analysis shows how quantitative easing and fiscal policy acting in conjunction with monetary policy may be useful in increasing bank lending. Further, the model shows how small contractions in monetary policy or in loan supply can lead to collapses in lending, aggregate investment, and collateral prices.

Notes:

Print version record

July 2010.