~onetary ~est~aint and instalment Credit

For as long as one can remember, monetary policy has been tossing about on a sea of controversy. The issues change from year to year, of course. Yet, curiously enough, it is difficult to detect anything like a convergence toward a consensus on such basic questions as: (1) What is monetary policy? (2) How does it work? (3) How well does it work? (4) How could its effedtiveness be enhanced, its possible adverse side effects minimized? Let me say at once that this paper does not pretend to settle these matters. However, it is based on the premise that progress can be made by taking an intensive look at one relatively small sector of the economy. The sector explored here is the market for consumer instalment credit. Section I discusses alternative views on the first two questions raised above; Section II briefly’ outlines some salient features of the institutional setting of instalment credit markets in the United States; Section III examines general evidence relating to the responsiveness of instalment credit to changes in monetary policy during 1952-70; and Section IV presents detailed information on the behavior of one important nonbank source of instalment credit, sales finance companies, during periods of monetary restraint. The major conclusions are summarized in Section V.