 Monetary policy and credit flows: A tale of two effective lower boundsTimothy Bianco and Ana María Herrera Journal of Economic Dynamics and Control, 2025, vol. 175, issue C Abstract: This paper evaluates the quantitative effects of monetary policy on credit flows. Using Compustat data and a factor-augmented vector autoregression where monetary policy shocks are identified via an external instrument, we show that monetary policy promotes long-term credit creation while delaying or preventing long-term credit destruction. In parallel, it reduces short-term credit creation and destruction, effectively reallocating credit toward longer maturities. Focusing on two effective lower bound periods, we show that monetary policy prompted a reshuffling of credit toward financially constrained firms, notably small, young, and high-default-probability firms. Our findings underscore the effectiveness of monetary policy in steering credit toward financially constrained firms and stimulating future economic activity near the effective lower bound. Keywords: Monetary policy; Credit reallocation; Business cycles; External instruments (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:175:y:2025:i:c:s0165188925000508 DOI: 10.1016/j.jedc.2025.105084 Access Statistics for this article Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok More articles in Journal of Economic Dynamics and Control from Elsevier |
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