This paper integrates a money and credit market into a static approximation of the baseline New Keynesian model based … on a money-and-credit-in-the-utility approach, in which real balances and borrowing contribute to the household’s utility … the banking sector. Our approach gives rise to a credit channel, in which current and expected future interest rates on …

The credit channel of monetary policy transmission operates through changes in lending. To examine this channel, we … Terms of Bank Lending, we are able to differentiate two ways the credit channel can work: by affecting overall bank lending … consistent with the operation of both internal credit channels. During periods of tight monetary policy, banks adjust their stock …