Editor's Introduction: Channels of Policy Proceedings of the Nineteenth Annual Economic Policy Conference
Channels of Monetary Policy
Lee E. Ohanian and Alan C. Stockman define the liquidity effect as “the purported statistical relation between expansion of bank reserves or a monetary aggregate and short-run reductions in short-term interest rates.” Ohanian and Stockman then explore the liquidity effect in general equilibrium, representative-agent models.
The article by Adrian R. Pagan and John C. Robertson narrows the disagreement about the empirical relevance of the liquidity effect. Pagan and Robertson thoroughly review the empirical literature on the liquidity effect, differentiating between single-equation and systems-modeling approaches.
The author surveys the credit channel for monetary policy. He makes clear that there are two possible credit channels for monetary policy, and that both require asymmetry in the access of “small” and “large” firms to credit. The bank credit channel operates directly on the ability of depository institutions to make loans through the effect of monetary policy actions (open market operations) on bank reserves.
The author surveys the credit channel for monetary policy. He makes clear that there are two possible credit channels for monetary policy, and that both require asymmetry in the access of “small” and “large” firms to credit.
Allan Meltzer proposes that sluggish price adjustment is necessary for monetary policy to have real effects. Meltzer’s purpose is to provide microeconomic foundations for price setting and the gradual adjustment of prices to new information.
Allan H. Meltzer replies to Randall Wright's commentary.
Ben Bernanke, Thomas Cooley, and Manfred Neumann each take a different approach to summarizing the profession’s understanding of the effects of monetary policy in this conference panel discussion, "What Do We Know About How Monetary Policy Affects the Economy?"