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Credit Traps

Author(s)
Benmelech, Efraim; Bergman, Nittai
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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.

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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.
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Abstract
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.
Date issued
2012-10
URI
http://hdl.handle.net/1721.1/87601
Department
Sloan School of Management
Journal
American Economic Review
Publisher
American Economic Association
Citation
Benmelech, Efraim, and Nittai K Bergman. “Credit Traps.” American Economic Review 102, no. 6 (October 2012): 3004–3032.
Version: Final published version
ISSN
0002-8282
1944-7981

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