Authors
Gert Peersman, Frank Smets
Publication date
2002/10/1
Journal
Monetary transmission in diverse economies
Pages
28-48
Publisher
Cambridge University Press
Description
This paper investigates whether the effects of monetary policy on economic activity in the euro area depend on the state of the economy. At least two strands of the literature predict that monetary policy is more effective in a recession than during a boom. ¹
The first class of theories is based on credit market imperfections. ² In these models, asymmetric information between borrowers and lenders gives rise to agency costs. These agency costs are reflected in an external finance premium, which typically depends on the net worth of the borrower. A borrower with higher net worth is able to post more collateral and can thereby reduce its cost of external financing.
Total citations
Scholar articles
G Peersman, F Smets - Monetary transmission in diverse economies, 2002