LOAN COMMITMENTS AND MONETARY-POLICY

In this paper, we examine the impact of loan commitment agreements on the way in which monetary policy affects the economy. We estimate a vector autoregressive (VAR) model and find evidence of a smaller impact of monetary policy on loans made under commitment agreements than on loans not made under commitment. Our conclusion is that loan commitments effectively protect borrowers from quantity credit rationing and, thus, force monetary policy to work mainly through interest-rate channels. © 1990.