Money and Credit in the Monetary Transmission Process

The title of this session asks about the roles of money or credit in the transmission of monetary and real shocks. Our answer, repeated in different forms for more than two decades, is that the analysis of the transmission process is incomplete without both the money and credit markets and their interaction. For many years, economists ignored the role of the credit markets. Recently, there has been some change. Concerns about financial fragility, banking failures, debt default and loan rationing focussed attention on credit markets. Reexamination of experience during the early 1930's (Ben Bernanke, 1983) raises an issue about whether credit market shocks operated 1) as an independent, or exogenous, impulse supplementing and reinforcing the monetary decline, or 2) as part of the interaction of credit, money (and other financial) markets.