Undergraduate Honors Theses

Thesis Defended

Spring 2012

Document Type




First Advisor

Devrim Demirel


The paper-bill spread was extremely volatile during the 2007-2009 crisis, jumping anywhere from 8 to 119 basis points. Since the spread is a proxy for credit market frictions, recent events have brought renewed interest in the relationship between monetary policy and the credit market. Empirical work on this literature has focused on one sample period. Boivin and Giovanni (2003), find that changes in monetary policy conduct reduce the effectiveness of a monetary shock after 1980. Using 1980 as my breakpoint, I seek to answer the following question: how does the paper-bill spread respond to a monetary shock? My VAR impulse responses and variance decompositions indicate that the spread reacts less to a monetary shock after 1980 but remains more persistent. These results suggest that structural changes in the credit market have fundamentally delayed monetary transmission.