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The credit channel of monetary policy transmission: evidence from stock returns
Author(s) -
Warner EJ,
Georges C
Publication year - 2001
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.2001.tb00051.x
Subject(s) - monetary policy , economics , credit crunch , monetary economics , credit channel , stock (firearms) , recession , stock market , financial system , macroeconomics , inflation targeting , mechanical engineering , engineering , paleontology , horse , biology
This paper offers a novel test of the credit view of the monetary policy transmission mechanism using stock market returns. We identify Fed policy shocks using newspaper accounts and track daily stock prices immediately following the shocks. If the credit channel is important, then firms that are dependent on bank credit and internal funds should receive a relatively greater benefit (loss) from a Fed easing (tightening) than firms with access to nonbank credit at favorable terms. We identify ten policy shocks during the expansion of 1993‐94 and the ‘credit crunch’ period of the 1990‐91 recession and find little evidence supportive of an operative credit channel.