Barattieri, AlessandroEden, MayaStevanovic, Dalibor2014-02-042014-02-042013-10https://hdl.handle.net/10986/16881This paper proposes a measure of the extent to which a financial sector is connected to the real economy. The Measure of Connectedness is a measure of the composition of assets, namely the share of credit to the non-financial sectors over the total credit market instruments. The aggregate Measure of Connectedness for the United States declines by about 27 percent in the period 1952-2009. The authors suggest that this increase in disconnectedness between the financial sector and the real economy may have dampened the sensitivity of the real economy to monetary shocks. They present a stylized model that illustrates how interbank trading can reduce the sensitivity of lending to the entrepreneur's net worth, thereby dampening the credit channel transmission of monetary policy. The Measure of Connectedness is interacted with both a structural vector autoregressive model and a factor-augmented vector autoregressive model for the United States economy. The analysis establishes that the impulse responses to monetary policy shocks are dampened as the level of connection declines.en-USCC BY 3.0 IGOACCOUNTINGACCOUNTING RULEAMOUNT OF CREDITASSET BACKED SECURITIESASSET CLASSAVAILABILITY OF CREDITBACKED SECURITIESBALANCE SHEETBALANCE SHEETSBANK LENDINGBANK LOANSBANK RUNSBANKING REGULATIONBANKING SECTORBANKING SYSTEMBONDBOND YIELDBORROWERBROKERSBUSINESS CYCLECAPITAL FLOWSCAPITAL REGULATIONCOLLATERALCOMMERCIAL BANKCOMMERCIAL BANK CREDITCOMMERCIAL BANKINGCOMMERCIAL BANKSCOMMERCIAL BANKS CREDITCOMMERCIAL LOANSCOMMODITIESCOMMODITYCOMMODITY PRICECOMMODITY PRICESCOMMON STOCKCOMPLEX SECURITIESCONSUMER CREDITCONSUMER EXPECTATIONSCONSUMER GOODSCONSUMER LOANSCONSUMPTION EXPENDITURECORPORATE BONDSCREDIT CHAINCREDIT MARKETCREDIT MARKETSCREDIT OUTSTANDINGCREDIT SPREADSCREDIT UNIONSDEBTDEBT OBLIGATIONSDEFLATORSDEPOSITDEPOSIT INSURANCEDEPOSITORYDEPOSITORY INSTITUTIONSDEPOSITSDEREGULATIONDERIVATIVEDERIVATIVESDEVELOPMENT POLICYDIVIDENDDIVIDEND YIELDDURABLEDURABLE GOODSDURABLESEARNINGSECONOMETRICSECONOMIC ACTIVITYECONOMICSELASTICITYENDOGENOUS VARIABLESENFORCEABILITYENTREPRENEURENTREPRENEURSEQUIPMENTEXCHANGE RATEEXPECTED RETURNEXPORTSFEDERAL RESERVEFEDERAL RESERVE BANKFINANCE COMPANIESFINANCIAL CONTAGIONFINANCIAL CRISISFINANCIAL GLOBALIZATIONFINANCIAL INNOVATIONFINANCIAL INSTITUTIONFINANCIAL INSTITUTIONSFINANCIAL INTERMEDIARIESFINANCIAL INTERMEDIARYFINANCIAL INTERMEDIATIONFINANCIAL MARKETSFINANCIAL MODERNIZATIONFINANCIAL PRODUCTSFINANCIAL SECTORFINANCIAL SECTORSFINANCIAL STABILITYFINANCIAL SYSTEMFINANCIAL SYSTEMSFLOW OF FUNDSFOREIGN EXCHANGEFUTURE RESEARCHGDPGDP DEFLATORGLOBALIZATIONGROSS DOMESTIC PRODUCTHOLDINGHOME MORTGAGESHOUSEHOLDSHUMAN CAPITALIDILLIQUID ASSETILLIQUID ASSETSINFLATIONINFLATION RATEINITIAL DEBTINSURANCEINSURANCE COMPANIESINSURANCESINTEREST INCOMEINTEREST RATEINTEREST RATE CHANGESINTERNATIONAL BANKINVENTORIESINVESTINGINVESTMENT BANKINGINVESTMENT DECISIONINVESTMENT INCOMEINVESTMENT OPPORTUNITIESINVESTMENT OPPORTUNITYINVESTMENT PROJECTSINVESTMENT VEHICLELENDERLENDERSLENDING DECISIONLIFE INSURANCELIFE INSURANCE COMPANIESLIQUIDITYLOANLOAN MARKETLOCAL GOVERNMENTM1M2MACROECONOMIC VARIABLESMACROECONOMICSMARKET INSTRUMENTSMATURITIESMERGERSMONETARY AUTHORITYMONETARY CONTROLMONETARY POLICYMONETARY SHOCKMONETARY SHOCKSMONETARY TRANSMISSIONMONETARY TRANSMISSION MECHANISMMONEY MARKETMORTGAGEMORTGAGE POOLSMORTGAGESMUNICIPAL SECURITIESMUTUAL FUNDSNET WORTHOPEN MARKETOUTPUTPENSIONPENSION FUNDSPERFORMANCE MEASURESPOLITICAL ECONOMYPRIVATE PENSIONREAL GDPREAL GROSS DOMESTIC PRODUCTRECESSIONRESERVERESERVE REQUIREMENTRESERVESRETURNRETURNSRISK PROFILESRISK TAKINGSAVINGSSAVINGS INSTITUTIONSSECURITIESSECURITIZATIONSHARE OF ASSETSSHARE OF CREDITSPOT MARKETSTOCK PRICESTRUCTURAL CHANGESYSTEMIC RISKTECHNOLOGICAL CHANGETRADE CREDITTRADINGTRADITIONAL FINANCIAL INSTITUTIONSTREASURIESTREASURYTREASURY SECURITIESUNEMPLOYMENTUNEMPLOYMENT RATEVALUATIONVALUE ADDEDVAR MODELSVOLATILITYWAGESWEALTHWorld Bank10.1596/1813-9450-6667