Credit traps
By: Efraim Benmelech, Nittai K. Bergman
Contributors: Bergman, Nittai K.; National Bureau of Economic Research
Series: NBER working paper series -- working paper 16200; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 16200.
Publisher: National Bureau of Economic Research
Published: 2010
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "This paper studies the limitations of monetary policy transmission within a credit channel frame- work.  We show that, under certain circumstances, the credit channel transmission mechanism fails in that liquidity injections by the central bank into the banking sector are hoarded and not lent out.  We use the term credit traps to describe such situations and show how they can arise due to the interplay between financing frictions, liquidity, and collateral values.  Our analysis offers a characterization of the problems created by credit traps as well as potential solutions and policy implications.  Among these, the analysis shows how quantitative easing and fiscal policy acting in conjunction with monetary policy may be useful in increasing bank lending.  Further, the model shows how small contractions in monetary policy or in loan supply can lead to collapses in lending, aggregate investment, and collateral prices"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 8/19/2010.

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