Financial-sector shocks in a credit-view model

A variation of the Bernanke–Blinder credit-view model reveals that holding constant the money supply following various financial-sector shocks, including an autonomous drop in the money multiplier, is insufficient to prevent aggregate demand from decreasing. ► A credit-view model is expanded to investigate autonomous shocks to the money multiplier and loan risk. ► Multiplier shocks affect aggregate demand even when the money supply is held constant. ► Extraordinary increases in the base are needed to offset decreases in the multiplier. ► The model supports a QE2-type response.