The structure of credit to the non-goverment sector and the transmission mechanism of monetary policy: a cross-country comparison

This paper provides a unique comparative overview of the structure of credit to the non-government sector in 14 industrialised countries and of its evolution over time with a view to casting new light on the implications for the transmission mechanism of monetary policy. The analysis draws on the central bank responses to a detailed questionnaire and other available information. Characteristics covered include, inter alia, breakdowns of credit in terms of instrument, maturity, the adjustability of contractual interest rates, collateral and the degree of control over the amounts of credit granted. The paper identifies similarities and differences across countries and offers conjectures about their influence on the relative importance of the channels through which monetary policy affects economy activity. The paper is part of a broader BIS cross-country study on the impact of financial structure on the transmission mechanism.

Monetary and prudential policies at a crossroads? New challenges in the new century

It is hard to find a period in the post-war era in which inflation-adjusted interest rates have been so low for so long and monetary and credit aggregates have expanded so much without igniting inflation (the "Great Liquidity Expansion puzzle"). What lies behind these developments? How benign are they? This paper argues that financial liberalisation, the establishment of credible anti-inflation monetary policies and (real-side) globalisation have resulted in subtle but profound changes in the dynamics of the economy and in the challenges faced by policymakers. In the new environment which has gradually been taking shape, the main "structural" risk may not be so much run away inflation. Rather, it may be the damage caused by the unwinding of financial imbalances that occasionally build up over the longer expansion phases of the economy, typically spanning more than one higher-frequency business cycle. Depending on its intensity, the unwinding can lead to economic weakness, unwelcome disinflation and possibly financial strains. The analysis has implications for monetary and prudential policies. It calls for a firmer long-term focus, for greater symmetry in policy responses between upswings and downswings, with more attention being paid to actions during upswings, and for closer cooperation between monetary and prudential authorities. In recent years, the intellectual climate and policy frameworks have gradually evolved in a direction more consistent with this perspective. At the same time, obstacles to further progress remain. They are of an analytical, institutional and, above all, political economy nature. Removing them calls for further analytical and educational efforts.business fluctuations, globalisation, prudential and monetary policy, financial imbalances, monetary and financial stability, liquidity

Market distress and vanishing liquidity: anatomy and policy options

Since the 1980s, a number of episodes of financial market distress have underscored the importance of the smooth functioning of markets for the stability of the financial system. At the heart of these episodes was a sudden and drastic reduction in market liquidity, characterised by disorderly adjustments in asset prices, a sharp increase in the costs of executing transactions and, in the most acute cases, a "seizing up" of markets. This essay explores the anatomy of market distress as well as the policy options to address it. It argues that, despite appearances, the genesis and dynamics of market distress resemble quite closely those of banking distress and that, contrary to conventional wisdom, the growth of markets for tradable instruments, and hence the greater scope to sell assets and raise cash, need not have reduced the likelihood of funding (liquidity) crises. At times of distress, in contrast to more normal times, risk management practices, funding constraints and counterparty risk become critical determinants of market liquidity. Articulating an appropriate policy response calls for an approach that takes full account of the interdependencies between the behaviour of market participants and market dynamics. To date, much useful work has been done to address market distress by improving the market infrastructure and the risk management at individual financial institutions. The territory that remains largely unexplored is precisely the link between the collective actions of individual market participants and market dynamics.Market distress and vanishing liquidity: anatomy and policy options