The credit channel in U.S. economic history

Torben W. Hendricks and Bernd Kempa

Journal of Policy Modeling, 2009, vol. 31, issue 1, 58-68

Abstract: This paper analyzes the effectiveness of the credit channel as a transmission mechanism of monetary policy in 20th century economic history by applying a Markov-switching model on the default premium of U.S. corporate bond portfolios. Beside the stance of monetary policy and the state of the business cycle, we identify a latent factor accounting for the strength of the credit channel. In particular, the credit channel appears to be active only in periods of financial distress, most notably during the Great Depression and the 1980s Savings and Loan debacle.

Keywords: Markov; switching; Monetary; policy; Credit; channel; Default; premium (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:31:y:2009:i:1:p:58-68

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