Authors
Xavier Freixas, José Jorge
Publication date
2008/9
Journal
Journal of Money, Credit and Banking
Volume
40
Issue
6
Pages
1151-1176
Publisher
Blackwell Publishing Inc
Description
This paper analyzes the impact of asymmetric information in the interbank market and establishes its crucial role in the microfoundations of the monetary policy transmission mechanism. We show that interbank market imperfections induce an equilibrium with rationing in the credit market. This has two major implications: first, it reconciles the irresponsiveness of business investment to the user cost of capital with the large impact of monetary policy (magnitude effect), and second, it shows that banks' liquidity positions condition their reaction to monetary policy (Kashyap and Stein liquidity effect).
Total citations
Scholar articles
X Freixas, J Jorge - Journal of Money, Credit and Banking, 2008