On the relevance of credit market structure to monetary policy
Credit affects the economy via various channels: its price, collateral requirements and the extent of rationing. Would the intensity of monetary transmission be affected by the market structure of the credit industry? Using a spatial competition framework I demonstrate how credit market structure can affect the transmission of monetary policy changes into real activity via the volume of credit. The paper also points that monetary tightening may render lending unprofitable and consequently beget a credit crunch; the extent of credit market robustness to contractive monetary policy is shown to depend on its structural characteristics.
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