CONSUMER CREDIT, LIQUIDITY, AND THE TRANSMISSION MECHANISM OF MONETARY POLICY

That the lending channel is alive and well for consumer lending is at first glance a compelling notion given the growth in consumer credit. However, this paper demonstrates with disaggregated monthly consumer credit data that the consumer loan-supply effect has diminished over time. Contrary to assumptions motivating the lending channel, after the mid-1980s, households are not constrained in accessing nonrevolving or revolving bank loans in response to a monetary shock. The findings of this paper have important implications for research on the monetary transmission mechanism beyond the lending channel and for business cycle research in general. (JEL E44, E50, E60, C32).