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Title: On dynamic monetary theory and the theory of monetary policy in the context of imperfect financial markets
Author: Cronje, A. J.
Awarding Body: University of Cambridge
Current Institution: University of Cambridge
Date of Award: 1999
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The main findings are that when such credit market frictions cause an economy's financial markets to be bank-oriented, a distinct, but not independent, "credit" channel imparts a supply-side aspect to monetary policy transmission dynamics, over and above the textbook demand-side yield and exchange rate mechanisms. This creates a distortion in such economies, in that they become less labour intensive than they otherwise would be. It also impacts on both the magnitude and convergence speeds of both nominal and real transitional dynamics by altering such economies' capacity level of employment: the transitional inflationary interest and exchange rate consequences of expansionary monetary policy are exaggerated and its positive effect on employment levels for a given level of output are magnified; correspondingly, a restrictive monetary policy shock that leads to expensive credit initiates a more deflationary transitional interest rate, a stronger transitional domestic currency and causes a lower employment level for a given level of output than would otherwise be the case without a supply-side bank lending "credit" channel. In short, it intensifies the potency of monetary policy interventions. These predictions, in turn, carry important implications for: judging how "loose" or how "tight" monetary policy regimes are in such economies; and determining how evolution in financial markets, due either to changes in regulations or to innovation, alters the nature of such economies' monetary transmission mechanisms over time.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available