Monetary policy and credit constraints
This research discussion paper from the Reserve Bank of Australia suggest that while effect of a change in the monetary policy interest rate on aggregate demand may be larger at higher levels of indebtedness, the extent of credit constraints may be at least as important, if not more so.
In particular, monetary policy could have a larger impact on aggregate demand when credit constraints are pervasive.
The results reveal that GDP growth is more responsive to interest rate shocks when credit
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