Changes in the transmission of monetary policy during crisis episodes: Evidence from the euro area and the U.S.

This paper proposes a bank-based theoretical model for the credit market that accommodates different types of creditors. The equilibrium relationships between monetary aggregates, credit interest rates and real income are derived from banks' optimizing behavior. This model is used to theoretically establish the effects of a crisis on the bank lending channel and, more specifically, on the equilibrium relationships between the main economic and monetary variables. The model is also used to explore the potential effects of unconventional monetary policies focused on reducing risk aversion during crisis episodes. These effects are empirically assessed applying cointegration techniques to macroeconomic data of the euro area and the United States before and after the collapse of the Lehman Brothers. The results support the efficacy of unconventional measures in restoring the conventional transmission channels between monetary aggregates but shed some doubts on the ability of these measures to boost economic activity.