|In Atlanta, Bernanke Discusses Monetary Policy, Finance
Addressing a June conference at the Atlanta Fed on "The Credit Channel of Monetary Policy in the 21st Century," Federal Reserve Chairman Ben Bernanke took his listeners on what he called "a whirlwind tour of several decades of research on how variations in the financial condition of borrowers, whether arising from changes in monetary policy or from other forces, can affect short-term economic dynamics."
Explaining the economy's fluctuations
This concept, Bernanke noted, "can help to explain the persistence and amplitude of cyclical fluctuations in a modern economy." In addition, "financial accelerator effects need not be confined to firms and capital spending but may operate through household spending decisions as well."
Bank loans feel the channel's changes
"The critical idea is that the cost of funds to borrowers depends inversely on their creditworthiness, as measured by indicators such as net worth and liquidity," Bernanke said. Endogenous changes in creditworthiness may increase the financial accelerator effect and strengthen the influence of the credit channel.
The conference assembled economists from the Atlanta Fed, other regional Federal Reserve banks, the Fed Board of Governors, the Bank of Japan, the European Central Bank, and universities around the world.
July 16, 2007