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May/June 1995

Posted 1995-05-01

Channels of Monetary Policy:

Editor's Introduction: Channels of Policy Proceedings of the Nineteenth Annual Economic Policy Conference

by Daniel L. Thornton and David C. Wheelock

Posted 1995-05-01

Channels of Monetary Policy:

Theoretical Issues of Liquidity Effects

by Lee E. Ohanian and Alan C. Stockman

Lee Ohanian and Alan 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.

Posted 1995-05-01

Channels of Monetary Policy:

Commentary

by Kevin D. Hoover

In his discussion of Ohanian and Stockman’s paper, Kevin Hoover re-interprets many of these models within a standard ISLM aggregate-supply/aggregate-demand framework. Hoover questions whether the research agenda on which Ohanian and Stockman report—namely, the modeling of monetary policy within a representative agent, cash-in-advance constraint framework—is useful for understanding the liquidity effect.

Posted 1995-05-01

Channels of Monetary Policy:

Resolving the Liquidity Effect

by Adrian R. Pagan and John C. Robertson

The article by Adrian Pagan and John 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.

Posted 1995-05-01

Channels of Monetary Policy:

Commentary

by Lawrence J. Christiano

Noting that the Fed’s operating procedure changed in late 1982, Christiano speculates whether the observed change in the liquidity effect might be due to a change in policy regime.

Posted 1995-05-01

Channels of Monetary Policy:

Is There a "Credit Channel" for Monetary Policy?

by R. Glenn Hubbard

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.

Posted 1995-05-01

Channels of Monetary Policy:

Commentary

by Bruce D. Smith

Smith’s analysis undercuts the significance of the empirical research that Hubbard finds most supportive of the broad credit view. Smith shows that a general-equilibrium, modified-neoclassical growth model capturing several key features of models associated with the broad credit view of monetary policy, has considerably different implications.

Posted 1995-05-01

Channels of Monetary Policy:

Distinguishing Theories of the Monetary Transmission Mechanism

by Stephen G. Cecchetti

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.

Posted 1995-05-01

Channels of Monetary Policy:

Commentary

by Mark Gertler

Agreeing with essentially all of what Cecchetti said, Gertler emphasizes the complementarity between the credit and traditional views of the effect of policy-induced changes in interest rates on spending. He illustrates how what he calls the financial propagation mechanism can magnify the traditional effect of policy-induced changes in interest rates.

Posted 1995-05-01

Channels of Monetary Policy:

Information, Sticky Prices and Macroeconomic Foundations

by Allan H. Meltzer

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.

Posted 1995-05-01

Channels of Monetary Policy:

Commentary

by Randall Wright

Randall Wright focuses on Meltzer’s remarks about the state of macroeconomics. Wright defends the use of general-equilibrium modeling in macroeconomics, arguing that this methodology has produced great strides in the profession’s understanding of business cycles, labor markets, and economic growth.

Posted 1995-05-01

Channels of Monetary Policy:

Reply to Wright

by Allan H. Meltzer

Allan H. Meltzer replies to Randall Wright's commentary. 

Posted 1995-05-01

Channels of Monetary Policy:

A Conference Panel Discussion

by Ben S. Bernanke, Thomas F. Cooley, and Manfred J.M. Neumann

Ben Bernanke, Thomas Cooley, and Manfred Neumann each take a different approach to summarizing the profession’s understanding of the effects of monetary policy. Bernanke argues that the semi-structural VAR approach is a fruitful method for investigating how monetary policy actions are transmitted through the economy.


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