《货币经济学》课程文献阅读：Credit Channels of Monetary Transmission（Bernanke and Gertler,1995）

American Economic association Inside the Black Box: The Credit Channel of Monetary Policy Transmission Author(s): Ben S Bernanke and Mark Gertler Source: The Journal of Economic Perspectives, Vol 9, No. 4(Autumn, 1995), pp. 27-48 Published by: American Economic Association StableUrl:http://www.jstororg/stable/2138389 Accessed:23/06/200911:39 Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of se, available at http://www.jstororg/page/info/about/policies/terms.jspJstOr'sTermsandConditionsofUseprovidesinpartthatunless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use Please contact the publisher regarding any further use of this work, Publisher contact information may be obtained at http://www.jstor.org/action/showpublisher?publishercode=aea. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmIssion JStOR is a not-for-profit organization founded in 1995 to build trusted digital archives for scholarship. We work with the cholarly community to preserve their work and the materials they rely upon, and to build a common research platform that information about JSTOR, please contact suppo American Economic Association is collaborating with JSTOR to digitize, preserve and extend access to The Journal of Economic Perspectives

American Economic Association Inside the Black Box: The Credit Channel of Monetary Policy Transmission Author(s): Ben S. Bernanke and Mark Gertler Source: The Journal of Economic Perspectives, Vol. 9, No. 4 (Autumn, 1995), pp. 27-48 Published by: American Economic Association Stable URL: http://www.jstor.org/stable/2138389 Accessed: 23/06/2009 14:39 Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at http://www.jstor.org/action/showPublisher?publisherCode=aea. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. JSTOR is a not-for-profit organization founded in 1995 to build trusted digital archives for scholarship. We work with the scholarly community to preserve their work and the materials they rely upon, and to build a common research platform that promotes the discovery and use of these resources. For more information about JSTOR, please contact support@jstor.org. American Economic Association is collaborating with JSTOR to digitize, preserve and extend access to The Journal of Economic Perspectives. http://www.jstor.org

Journal of Economic Perspectives-Volume 9, Number fAll 1995-Pagres 27-48 Inside the black box: The Credit Channel of Monetary Policy Transmission Ben s. bernanke and mark gertler M ost economists would agree that, at least in the short run, monetary policy can significantly influence the course of the real economy. In deed, a spate of recent empirical research has confirmed the early find- ing of Friedman and Schwartz(1963)that monetary policy actions are followed by movements in real output that may last for two years or more(Romer and Romer, 1989 Bernanke and Blinder, 1992; Christiano, Eichenbaum and Evans, 1994a, b) There is far less agreement however about exactly how monetary policy exerts its influence: the same research that has established that changes in monetary policy are event tually followed by changes in output is largely silent about what happens in the interim. To a great extent, empirical analysis of the effects of monetary policy has treated the monetary transmission mechanism itself as a"black box Of course, conventional views of how monetary policy works are readily avail- able. According to many textbooks, monetary policymakers use their leverage over short-term interest rates to influence the cost of capital and, consequently, spending on durable goods, such as fixed investment, housing, inventories and consumer durables. In turn, changes in aggregate demand affect the level of production. But the textbook story is incomplete in several important ways One problem is that, in general, empirical studies of supposedly"interest sensitive"components of aggregate spending have in fact had great difficulty in identifying a quantitatively important effect of the neoclassical cost-of-capital vari- able.Indeed, the most common finding is that nonneoclassical factors--for examp pected price changes, is(r+ d)Pe, where ris the required real return to lenders(which could include sk), d is the depreciation rate and pa is the price a Ben S. Bernanke is Class of 1926 Professor of Economics and Public Affairs, Princeton University, Princeton, New Jersey (e-mail: bernanke@wws. princeton. edu). Mark gertler is Professor of Economics, New York University, New York, New York (gertler@ fasecon. econ. nyu. edu)

Journal of Economic Perspectives-Volume 9, Number 4-Fall 1995-Pages 27-48 Inside the Black Box: The Credit Channel of Monetary Policy Transmission Ben S. Bernanke and Mark Gertler M s ff ost economists would agree that, at least in the short run, monetary policy can significanty influence the course of the real economy. In￾deed, a spate of recent empirical research has confirmed the early find￾ing of Friedman and Schwartz (1963) that monetary policy actions are followed by movements in real output that may last for two years or more (Romer and Romer, 1989; Bernanke and Blinder, 1992; Christiano, Eichenbaum and Evans, 1994a,b). There is far less agreement, however, about exactly how monetary policy exerts its influence: the same research that has established that changes in monetary policy are eventually followed by changes in output is largely silent about what happens in the interim. To a great extent, empirical analysis of the effects of monetary policy has treated the monetary transmission mechanism itself as a "black box." Of course, conventional views of how monetary policy works are readily avail￾able. According to many textbooks, monetary policymakers use their leverage over short-term interest rates to influence the cost of capital and, consequently, spending on durable goods, such as fixed investment, housing, inventories and consumer durables. In turn, changes in aggregate demand affect the level of production. But the textbook story is incomplete in several important ways. One problem is that, in general, empirical studies of supposedly "interest￾sensitive" components of aggregate spending have in fact had great difficulty in identifying a quantitatively important effect of the neoclassical cost-of-capital vari￾able.' Indeed, the most common finding is that nonneoclassical factors-for example, ' In a frictionless market, the usual Jorgensonian formula for the neoclassical cost of capital, ignoring expected price changes, is (r + d)pk, where ris the required real return to lenders (which could include a premium for systematic risk), d is the depreciation rate and pk is the price of a new capital good. * Ben S. Bernanke is Class of 1926 Professor of Economics and Public Affairs, Princeton University, Princeton, New Jersey (e-mail: bernanke@wws.princeton.edu). Mark Gertler is Professor of Economics, New York University, New York, New York (gertlerm@ fasecon. econ. nyu. edu)

28 Journal of Economic Perspectives accelerator"variables such as lagged output, sales or cash flow-have the greatest impact on spending. (For recent surveys on the determinants of spending components, see blinder and maccini. 1991. on inventories: Chirinko. 199%. on business fixed in- vestment; and Boldin, 1994, on housing. ) Further, in the relatively few cases in which evidence for a cost-of-capital effect is found, the nonneoclassical determinants of spend ing typically remain significant (for example, Boldin, 1994; Cummins, Hassett and Hubbard, 1994). Empirical studies that have tested the neoclassical model in its equi alent "Tobins q formulation have generally been no more successful Beyond the problem of weak cost-of-capital effects in estimated spending equa- tions, there is a presumption that monetary policy should have its strongest infl ence on short-term interest rates. For example, the federal funds rate, the most closely controlled interest rate, is an overnight rate. Conversely, monetary poli should have a relatively weaker impact on long-term rates, especially real long-term purchases of long-lived assets, such as housing or production equipment, which 9 rates. It is puzzling therefore, that monetary policy apparently has large effects to the extent that they are sensitive to interest rates at all-should be responsive primarily to real long-term rates These gaps in the conventional story have led a number of economists to ex- plore whether imperfect information and other"frictions"in credit markets might help explain the potency of monetary policy. Collectively, the mechanisms that have been described in this literature are known loosely as the credit channel of mon- etary transmission. In this article, we summarize our current view of the credit channel and its role inside the "black box"of monetary policy transmission We don' t think of the credit channel as a distinct, free-standing alternative to the traditional monetary transmission mechanism, but rather as a set of factors that amplify and propagate conventional interest rate effects. For this reason, the term credit channel" is something of a misnomer; the credit channel is an enhance- nent mechanism, not a truly independent or parallel channel. Moreover, this no- menclature has led some authors to focus-inappropriately, in our view-on the behavior of credit aggregates, a point that we discuss later. However, it is probably too late to change the terminology now According to the credit channel theory, the direct effects of monetary policy on interest rates are amplified by endogenous changes in the external finance premium, which is the difference in cost between funds raised externally(by issuing equity or debt) and funds generated internally(by retaining earnings). The size of the external finance premium reflects imperfections in the credit markets that drive a wedge be- tween the expected return received by lenders and the costs faced by potential bor owers.According to the credit view, " a change in monetary policy that raises or lowers open-market interest rates tends to change the external finance premium in the same direction. Because of this additional effect of policy on the extermal finance 2 Although we focus on the external finance premium in this article, it should be clear that credit market imperfections may also affect the safe real interest rate in general equilibrium(for example, Stein, 995b). In emphasizing the external finance premium, we implicitly assume that, over the time span under consideration, the Fed can set the short-term safe rate at the level that it desire

28 Journal of Economic Perspectives "accelerator" variables such as lagged output, sales or cash flow-have the greatest impact on spending. (For recent surveys on the determinants of spending components, see Blinder and Maccini, 1991, on inventories; Chirinko, 1993, on business fixed in￾vestment; and Boldin, 1994, on housing.) Further, in the relatively few cases in which evidence for a cost-of-capital effect is found, the nonneoclassical determinants of spend￾ing typically remain significant (for example, Boldin, 1994; Cummins, Hassett and Hubbard, 1994). Empirical studies that have tested the neoclassical model in its equiv￾alent "Tobin's q" formulation have generally been no more successful. Beyond the problem of weak cost-of-capital effects in estimated spending equa￾tions, there is a presumption that monetary policy should have its strongest influ￾ence on short-term interest rates. For example, the federal funds rate, the most closely controlled interest rate, is an overnight rate. Conversely, monetary policy should have a relatively weaker impact on long-term rates, especially real long-term rates. It is puzzling, therefore, that monetary policy apparendly has large effects on purchases of long-lived assets, such as housing or production equipment, which to the extent that they are sensitive to interest rates at all-should be responsive primarily to real long-term rates. These gaps in the conventional story have led a number of economists to ex￾plore whether imperfect information and other "frictions" in credit markets might help explain the potency of monetary policy. Collectively, the mechanisms that have been described in this literature are known loosely as the credit channel of mon￾etary transmission. In this article, we summarize our current view of the credit channel and its role inside the "black box" of monetary policy transmission. We don't think of the credit channel as a distinct, free-standing alternative to the traditional monetary transmission mechanism, but rather as a set of factors that amplify and propagate conventional interest rate effects. For this reason, the term "credit channel" is something of a misnomer; the credit channel is an enhance￾ment mechanism, not a truly independent or parallel channel. Moreover, this no￾menclature has led some authors to focus-inappropriately, in our view-on the behavior of credit aggregates, a point that we discuss later. However, it is probably too late to change the terminology now. According to the credit channel theory, the direct effects of monetary policy on interest rates are amplified by endogenous changes in the extemnal finance premium, which is the difference in cost between funds raised externally (by issuing equity or debt) and funds generated internally (by retaining earnings).2 The size of the external finance premium reflects imperfections in the credit markets that drive a wedge, be￾tween the expected return received by lenders and the costs faced by potential bor￾rowers. According to the "credit view," a change in monetary policy that raises or lowers open-market interest rates tends to change the external finance premium in the same direction. Because of this additional effect of policy on the external finance 2 Although we focus on the external finance premium in this article, it should be clear that credit market imperfections may also affect the safe real interest rate in general equilibrium (for example, Stein, 1995b). In emphasizing the external finance premium, we implicitly assume that, over the time span under consideration, the Fed can set the short-term safe rate at the level that it desires

Ben s. bernanke and mark gertler 2 premium, the impact of monetary policy on the cost of borrowing broadly defined- and, consequently, on real spending and real activity-is magnified Why should actions taken by the central bank have any effect on the external finance premium in credit markets? In this article we describe two possible link ges. The first of these, the balance sheet channel, stresses the potential impact of changes in monetary policy on borrowers balance sheets and income statements, including variables such as borrowers' net worth, cash flow and liquid assets. The second linkage, the bank lending channel, focuses more narrowly on the possible effect of monetary policy actions on the supply of loans by depository institutions In our view, the existence of a balance sheet channel seems fairly well established e bank lending channel is more controversial, Institutional changes during the past 15 years or so have rendered the bank lending channel, at least as traditionally con- ceived, somewhat less plausible. On the other hand, certain other developments may increased the importance of bank lending in monetary transmission. In this paper we do not attempt to draw strong conclusions about the relative importance of the balance sheet and bank lending channels. Instead, we try to make the case for the broader view that allowing for a credit channel of some type is important for under- standing the response of the economy to changes in monetary policy How the Economy Responds to Monetary Policy Shocks: Facts and Puzzles To set the stage for our discussion of how monetary policy works, we first fill in some of the details about what happens in the economy after a change in mon etary policy (a tightening, say)occurs. We do so by extending recent empirical work on the effects of monetary policy to consider its impact on some of GDP. We emphasize four basic facts about the response of the economy to mon- etary policy shocks Fact I: Although an unanticipated tightening in monetary policy typically has only transitory effects on interest rates, a monetary tightening is followed by sustained declines in real GDP and the price level Fact 2: Final demand absorbs the initial impact of a monetary tightening, falling relatively quickly after a change in policy. Production follows final demand downward, but only with a lag, implying that inventory stocks rise in the short run Ultimately, however, inventories decline, and inventory disinvestment accounts for a large portion of the decline in GDP. Fact 3: The earliest and sharpest declines in final demand occur in residential investment, with spending on consumer goods(including both durables and non- durables)close behind nkages have been extensively discussed in the literature. Surveys of related material include others) Bernanke (1993a), Kashyap and Stein(1994), Hubbard(1994)and Bernanke, Gertler arist(forthcoming)

Ben S. Bernanke and Mark Gertler 29 premium, the impact of monetary policy on the cost of borrowing broadly defined and, consequently, on real spending and real activity-is magnified. Why should actions taken by the central bank have any effect on the external finance premium in credit markets? In this article we describe two possible link￾ages.3 The first of these, the balance sheet channel, stresses the potential impact of changes in monetary policy on borrowers' balance sheets and income statements, including variables such as borrowers' net worth, cash flow and liquid assets. The second linkage, the bank lending channel, focuses more narrowly on the possible effect of monetary policy actions on the supply of loans by depository institutions. In our view, the existence of a balance sheet channel seems fairly well established. The bank lending channel is more controversial. Institutional changes during the past 15 years or so have rendered the bank lending channel, at least as traditionally con￾ceived, somewhat less plausible. On the other hand, certain other developments may have increased the importance of bank lending in monetary transmission. In this paper we do not attempt to draw strong conclusions about the relative importance of the balance sheet and bank lending channels. Instead, we try to make the case for the broader view that allowing for a credit channel of some type is important for under￾standing the response of the economy to changes in monetary policy. How the Economy Responds to Monetary Policy Shocks: Facts and Puzzles To set the stage for our discussion of how monetary policy works, we first fill in some of the details about what happens in the economy after a change in mon￾etary policy (a tightening, say) occurs. We do so by extending recent empirical work on the effects of monetary policy to consider its impact on some key components of GDP. We emphasize four basic facts about the response of the economy to mon￾etary policy shocks. Fact 1: Although an unanticipated tightening in monetary policy typically has only transitory effects on interest rates, a monetary tightening is followed by sustained declines in real GDP and the price level. Fact 2: Final demand absorbs the initial impact of a monetary tightening, falling relatively quickly after a change in policy. Production follows final demand downward, but only with a lag, implying that inventory stocks rise in the short run. Ultimately, however, inventories decline, and inventory disinvestment accounts for a large portion of the decline in GDP. Fact 3: The earliest and sharpest declines in final demand occur in residential investment, with spending on consumer goods (including both durables and non￾durables) close behind. 3Both linkages have been extensively discussed in the literature. Surveys of related material include (among others) Bernanke (1993a), Kashyap and Stein (1994), Hubbard (1994) and Bernanke, Gertler and Gilchrist (forthcoming)

30 Jounal of Economic Perspectives fact 4: Fixed business investment eventually declines in response to a monetary tightening, but its fall lags behind those of housing and consumer durables and, ndeed, behind much of the decline in production and interest rates Responses to Policy Shocks: Evidence from Vector Autoregressions These four facts are illustrated by Figures 1-3, which show the dynamic re- sponses of various economic aggregates to an unanticipated tightening of monetar policy. Figures 1-3 are generated by the technique of"vector autoregression. A vector autoregression, or VAR, is a system of ordinary least-squares regressions, in which each of a set of variables is regressed on lagged values of both itself and th other variables in the set. VARs have proved to be a convenient method of sum- marizing the dynamic relationships among variables, since, once estimated, they can be used to simulate the response over time of any variable in the set to either an"own"disturbance(that is, a disturbance to the equation for which the variable is the dependent variable) or a disturbance to any other variable in the system The VARs that we employ here include various combinations of macroeconomic variables and, additionally, the federal funds interest rate. Following Bernanke and Blinder(1992), Christiano, Eichenbaum and Evans(1994a, b)and others, we em- ploy the federal funds rate as an indicator of the stance of monetary policy; this means that we identify the disturbances to the funds-rate equation in the vaR as shocks to monetary policy, and we interpret the responses of other variables in the system to a funds-rate shock as the structural responses of those variables to an unanticipated change in monetary policy. Because we are interested in observing ine timing of responses to monetary shocks, we use monthly data. The sample period on which Figures 1-3 are based is January 1965 through December 1993 (subsample results are similar) GDP"igure l is based on a VAR system that includes the log of real GDP, the log of the deflator, the log of an index of commodity prices and the federal funds rate(in ercentage points), in that order. Real GDP and the gDp deflator are included as broad sures of economic activity and prices, and the commodity price index is intended to control for oil price shocks and other supply-side factors influencing output and The use of VARs in macroeconomics was pioneered by Sims(1980); for a comprehensive recent di cussion, see Watson(1994) "Bernanke and Blinder(1992)argue that the Fed has often used the funds rate which is the interest te prevailing in the market for bank reserves, as its primary policy indicator(particularly before 1979) Bernanke and Mihov(1995)estimate a model of the Feds operating procedures and find that funds. te targeting describes Fed behavior particularly well prior to 1979 and from 1988 to the present. In the results discussed here are not dependent on using the funds rate as the monetary policy indicator; similar results are obtained when using reserves-based indicators(see, for example, Strongin 1992)or indicators developed through historical analysis(for example, Romer and Romer, 1989) t We constructed monthly data for real GDP and the GDP deflator by interpolation methods, using a f monthly series to provide the within-quarter information. Bernanke and Mihov( 1995)offer Results using noninterpolated monthly output and price data-for example, the industrial pr index and the CPI (excluding shelter)-yield very similar results. Twelve lags of each variable onstant term are included in each equation of the VAR

30 Journal of Economic Perspectives Fact 4: Fixed business investment eventually declines in response to a monetary tightening, but its fall lags behind those of housing and consumer durables and, indeed, behind much of the decline in production and interest rates. Responses to Policy Shocks: Evidence from Vector Autoregressions These four facts are illustrated by Figures 1-3, which show the dynamic re￾sponses of various economic aggregates to an unanticipated tightening of monetary policy. Figures 1-3 are generated by the technique of "vector autoregression." A vector autoregression, or VAR, is a system of ordinary least-squares regressions, in which each of a set of variables is regressed on lagged values of both itself and the other variables in the set. VARs have proved to be a convenient method of sum￾marizing the dynamic relationships among variables, since, once estimated, they can be used to simulate the response over time of any variable in the set to either an "own" disturbance (that is, a disturbance to the equation for which the variable is the dependent variable) or a disturbance to any other variable in the system.4 The VARs that we employ here include various combinations of macroeconomic variables and, additionally, the federal funds interest rate. Following Bernanke and Blinder (1992), Christiano, Eichenbaum and Evans (1994a,b) and others, we em￾ploy the federal funds rate as an indicator of the stance of monetary policy; this means that we identify the disturbances to the funds-rate equation in the VAR as shocks to monetary policy, and we interpret the responses of other variables in the system to a funds-rate shock as the structural responses of those variables to an unanticipated change in monetary policy.5 Because we are interested in observing the fine timing of responses to monetary shocks, we use monthly data. The sample period on which Figures 1-3 are based is January 1965 through December 1993 (subsample results are similar). Figure 1 is based on a VAR system that includes the log of real GDP, the log of the GDP deflator, the log of an index of commodity prices and the federal funds rate (in percentage points), in that order. Real GDP and the GDP deflator are included as broad measures of economic activity and prices,6 and the commodity price index is intended to control for oil price shocks and other supply-side factors influencing output and 'The use of VARs in macroeconomics was pioneered by Sims (1980); for a comprehensive recent dis￾cussion, see Watson (1994). 5Bernanke and Blinder (1992) argue that the Fed has often used the funds rate, which is the interest rate prevailing in the market for bank reserves, as its primary policy indicator (particularly before 1979). Bernanke and Mihov (1995) estimate a model of the Fed's operating procedures and find that funds￾rate targeting describes Fed behavior particularly well prior to 1979 and from 1988 to the present. In any case, the results discussed here are not dependent on using the funds rate as the monetary policy indicator; similar results are obtained when using reserves-based indicators (see, for example, Strongin, 1992) or indicators developed through historical analysis (for example, Romer and Romer, 1989). 6 We constructed monthly data for real GDP and the GDP deflator by interpolation methods, using a variety of monthly series to provide the within-quarter information. Bernanke and Mihov (1995) offer details. Results using noninterpolated monthly output and price data-for example, the industrial pro￾duction index and the CPI (excluding shelter) -yield very similar results. Twelve lags of each variable and a constant term are included in each equation of the VAR