Asymmetric Information and the Transmission Mechanism of Monetary Policy

Ulrike Neyer

German Economic Review, 2007, vol. 8, issue 3, 428-446

Abstract: Abstract. This paper analyses the consequences of asymmetric information in credit markets for the monetary transmission mechanism. It shows that asymmetric information can not only reinforce but can also weaken or overcompensate the effects of the standard interest rate channel. Crucial is that informational problems lead to an external finance premium that can be positive or negative for marginal entrepreneurs. Tight money may lead to an increase in the absolute value of this premium, implying that there is a credit channel of monetary policy, but its working direction is ambiguous.

Date: 2007
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https://doi.org/10.1111/j.1468-0475.2007.00411.x

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German Economic Review is currently edited by Bernhard Felderer, Joseph F. Francois, Ivo Welch, Urs Schweizer and David E. Wildasin

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