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Bank Credit Versus Nonbank Credit and the Supply of Liquidity by the Central Bank

  • Milton H. Marquis
Chapter

Abstract

Commercial banks provide an important source of financing to firms for working capital expenses. As a consequence, when banks tighten their terms and conditions of business lending, the supply of bank loans to businesses declines and bank loan rates rise. This tightening of bank lending standards cannot be perfectly foreseen and as such represents a “real” shock to the economy. In response, businesses cut back on hiring, as productivity must rise to reflect the higher financing cost. This effect is mitigated to some extent as firms shift their financing away from banks and toward nonbank sources of credit. One such source is the capital market.1

Keywords

Monetary Policy Central Bank Bank Loan Trade Credit Impulse Response Function 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer Science+Business Media New York 2001

Authors and Affiliations

  • Milton H. Marquis
    • 1
  1. 1.Florida State University and the Federal Reserve Bank of San FranciscoUSA

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