ABSTRACT
This chapter examines how different manifestations of the first-round effect are responsible for the so-called secondary features of business cycles. It is a fact that there are no two identical business cycles. Although many factors contribute to the differences in their course, including different institutional conditions, the chapter argues that the differences in how new money is introduced through the credit channel are largely responsible for the nonhomogeneous course of business cycles. Although differences in monetary policy and investment decisions of enterprises also affect the course of the business cycle, the chapter focuses on the impact of investment policies of commercial banks. The chapter shows that there are different “methods” of creating bank deposits and that commercial banks, through their investment policy and decisions regarding the structure of assets, affect the course of the business cycle. In other words, various mechanisms for introducing new money into the economy (within the credit expansion channel) lead to different secondary features of business cycles.
