ABSTRACT
Recent theoretical and empirical investigation2 has stressed the fact that monetary authorities can still influence the real variables of the economy despite the weaker link between the money supply and economic activity due to financial innovation. According to Blinder and Stiglitz (1983), the greater stability in the credit demand function (compared with that for money) and the particular position of banks in the credit system have given to the central bank the capacity to affect the real economy.3 Monetary policy has begun to be transmitted through its effects on the supply of credit. By controlling the supply of credit, monetary authorities have not only affected the economy through aggregate demand but also through the aggregate supply of goods when the short side of the market is the credit supply. That being the case, the efficacy of macroeconomic policy depends in a crucial way on its impact on the credit supply for the private sector.4
