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The Credit Effects of Monetary Policy: Evidence Using Loan Commitments

Donald P. Morgan
Journal of Money, Credit and Banking
Vol. 30, No. 1 (Feb., 1998), pp. 102-118
DOI: 10.2307/2601270
Stable URL: http://www.jstor.org/stable/2601270
Page Count: 17
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The Credit Effects of Monetary Policy: Evidence Using Loan Commitments
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Abstract

In addition to the usual channels, monetary policy may affect spending by changing the supply of bank loans and the creditworthiness of borrowers. This paper tests for these credit effects using a contractual difference across commercial bank loans. I find that bank loans not made under a commitment slow after tight policy, while loans under commitment accelerate or are unchanged. This divergence coincides with reports of tighter credit by lenders and by small firms, suggesting the divergence reflects a reduction in the supply of credit to the firms without commitments, rather than a reduction in their demand for loans.

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