The Importance of Credit for Macroeconomic Activity: Identification through Heterogeneity

Abstract

Recent work in macroeconomics emphasizes the role of credit in the transmission mechanism for monetary policy and as a propagation mechanism of business cycle shocks. 1 Wlule much evidence has been gathered, not all researchers agree on the relevance of credit for the transmission of monetary policy nor for its relevance as a propagation mechanism of business cycle shocks. For the most part, every one agrees on the facts at hand but differs on their interpretation. In short, the argument is over identification. The primary purpose of this paper is to clarify the identification issues involved; to highlight those identification schemes that are promising avenues for measuring the importance of credit in aggregate fluctuations; and to provide a discussion of both previous evidence and new evidence in light of the identification schemes proposed. 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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