Optimal Monetary Policy with Countercyclical Credit Spreads
We study optimal monetary policy in a New-Keynesian Dynamic Stochastic General Equilibrium (DSGE) model with a credit channel and relationship lending in banking.We showthat borrowers’ bank-specific (deep) habits give rise to countercyclical credit spreads, which, in turn, make optimal monetary poli...
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| Veröffentlicht in: | Journal of money, credit and banking credit and banking, 2019-06, Vol.51 (4), p.787-829 |
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| container_end_page | 829 |
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| container_issue | 4 |
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| container_title | Journal of money, credit and banking |
| container_volume | 51 |
| creator | AIRAUDO, MARCO OLIVERO, MARÍA PÍA |
| description | We study optimal monetary policy in a New-Keynesian Dynamic Stochastic General Equilibrium (DSGE) model with a credit channel and relationship lending in banking.We showthat borrowers’ bank-specific (deep) habits give rise to countercyclical credit spreads, which, in turn, make optimal monetary policy depart substantially from price stability, under both discretion and commitment. Our analysis shows that the welfare costs of setting monetary policy under discretion (with respect to the optimal Ramsey plan) and of using simpler suboptimal policy rules are strictly increasing in the magnitude of deep habits in credit markets and market power in banking. |
| doi_str_mv | 10.1111/jmcb.12598 |
| format | Article |
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| issn | 0022-2879 1538-4616 |
| language | eng |
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| source | Wiley Online Library All Journals |
| subjects | cost channel Credit credit frictions credit spreads deep habits E32 E44 E50 Economic models Habits Inflation Markets Monetary policy New‐Keynesian model optimal monetary policy Power Welfare |
| title | Optimal Monetary Policy with Countercyclical Credit Spreads |
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