Credit Traps
This paper studies the limitations of monetary policy in stimulating credit and investment. We show that, under certain circumstances, unconventional monetary policies fail in that liquidity injections into the banking sector are hoarded and not lent out. We use the term "credit traps" to...
| Main Authors: | , |
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| Other Authors: | |
| Format: | Article |
| Language: | en_US |
| Published: |
American Economic Association
2014
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| Online Access: | http://hdl.handle.net/1721.1/87601 https://orcid.org/0000-0001-6486-333X |
| _version_ | 1826194952561885184 |
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| author | Benmelech, Efraim Bergman, Nittai |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Benmelech, Efraim Bergman, Nittai |
| author_sort | Benmelech, Efraim |
| collection | MIT |
| description | This paper studies the limitations of monetary policy in stimulating credit and investment. We show that, under certain circumstances, unconventional monetary policies fail in that liquidity injections 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. We show that small contractions in monetary policy can lead to a collapse in lending. Our analysis demonstrates how quantitative easing may be useful in increasing collateral prices, bank lending, and aggregate investment. |
| first_indexed | 2024-09-23T10:04:26Z |
| format | Article |
| id | mit-1721.1/87601 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T10:04:26Z |
| publishDate | 2014 |
| publisher | American Economic Association |
| record_format | dspace |
| spelling | mit-1721.1/876012022-09-26T15:31:52Z Credit Traps Benmelech, Efraim Bergman, Nittai Sloan School of Management Bergman, Nittai This paper studies the limitations of monetary policy in stimulating credit and investment. We show that, under certain circumstances, unconventional monetary policies fail in that liquidity injections 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. We show that small contractions in monetary policy can lead to a collapse in lending. Our analysis demonstrates how quantitative easing may be useful in increasing collateral prices, bank lending, and aggregate investment. 2014-06-02T16:09:18Z 2014-06-02T16:09:18Z 2012-10 Article http://purl.org/eprint/type/JournalArticle 0002-8282 1944-7981 http://hdl.handle.net/1721.1/87601 Benmelech, Efraim, and Nittai K Bergman. “Credit Traps.” American Economic Review 102, no. 6 (October 2012): 3004–3032. https://orcid.org/0000-0001-6486-333X en_US http://dx.doi.org/10.1257/aer.102.6.3004 American Economic Review Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use. application/pdf American Economic Association American Economic Association |
| spellingShingle | Benmelech, Efraim Bergman, Nittai Credit Traps |
| title | Credit Traps |
| title_full | Credit Traps |
| title_fullStr | Credit Traps |
| title_full_unstemmed | Credit Traps |
| title_short | Credit Traps |
| title_sort | credit traps |
| url | http://hdl.handle.net/1721.1/87601 https://orcid.org/0000-0001-6486-333X |
| work_keys_str_mv | AT benmelechefraim credittraps AT bergmannittai credittraps |