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The credit supply channel of monetary policy: evidence from a FAVAR model with sign restrictions

  • Juan S. Holguín
  • Jorge M. UribeEmail author
Article

Abstract

We test whether the credit channel of the monetary policy was present in the United States’ economy from January 2001 to April 2016. To this end, we use a factor-augmented vector autoregression, and we impose sensible theoretical sign restrictions in our structural identification scheme. We use the expected substitution effect between bank commercial loans and commercial papers to identify the credit supply channel. We found that the credit channel appears to have operated in the US economy during the sample period. However, when we split the sample, we found that the credit channel did not operate after the subprime crisis (close to the Zero Lower Bound of the interest rate). This result is robust to changing the sign restriction horizons. It supports current views in the literature regarding the ineffectiveness of the credit channel as a means to foster real economic activity during crises episodes.

Keywords

Credit channel FAVAR Sign restrictions Monetary policy 

JEL Classification

E51 E52 C32 

Notes

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Department of EconomicsUniversidad del ValleCaliColombia
  2. 2.Department of Economics and Business StudiesOpen University of CataloniaBarcelonaSpain
  3. 3.RiskcenterUniversity of BarcelonaBarcelonaSpain

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