The market’s net retrenchment of recent days will tend to damp that impetus, a development that should help to prolong our six-and-a-half-year business expansion. As I have testified previously, much of the stock price gain since early 1995 seems to have reflected upward revisions of long-term earnings expectations, which were implying a continuing indefinite rise in profit margins from already high levels.
On the contrary, we have observed that the lending channel via the banks is quite robust. In fact, the transmission of monetary shocks through the lending channel is asymmetrically distributed; smaller banks, which have a higher cost of funds, tend to amplify monetary shocks for smaller borrowers.