Money Demand and Off—Balance Sheet Liquidity: Empirical Analysis and Implications for Monetary Policy.

In recent years, off-balance sheet credit facilities have grown dramatically and now represent the most prevalent contractual framework within which commercial and industrial borrowing from banks occurs. One important role of these facilities is to provide liquidity to bank customers that acts as a substitute for on-balance sheet liquidity or "money." This paper discusses empirical evidence of the substitutability between on- and off-balance sheet liquidity for the business sector. It also discusses the implications of this relationship for interest rate determination and monetary policy. In particular, it is argued that monetary policy should pay more attention to off-balance sheet liquidity when choosing targets and operating procedures. [ABSTRACT FROM AUTHOR]