Journal Articles
Corporate Finance and the Monetary Transmission Mechanism
Authors
Bolton, Patrick; Freixas Dargallo, Xavier
UPF authors
Type
Scholarly articles
Journal title
The Review of Financial Studies
Publication year
2006
Volume
19
Number
3
Pages
829-870
ISSN
0893-9454
Publication State
Published
Abstract
We analyze the transmission effects of monetary policy in a general equilibrium model of the financial sector, with bank lending and securities markets. Bank lending is constrained by capital adequacy requirements, and asymmetric information adds a cost to outside bank equity capital. In our model, monetary policy does not affect bank lending through changes in bank liquidity; rather, it operates through changes in the spread of bank loans over corporate bonds, which induce changes in the aggregate composition of financing by firms, and in banks¿ equity-capital base. The model produces multiple equilibria, one of which displays all the features of a ¿credit crunch.¿
Complete citation
Bolton, Patrick; Freixas Dargallo, Xavier. Corporate Finance and the Monetary Transmission Mechanism. The Review of Financial Studies 2006; 19(3): 829-870.
