1. Incomplete interest rate pass-through under credit and labor market frictions
- Author
-
Danilo Liberati, Francesco Giuli, Giuseppe Ciccarone, Giuli, Francesco, Ciccarone, G, and Liberati, D.
- Subjects
Macroeconomics ,Economics and Econometrics ,credit market frictions ,media_common.quotation_subject ,Monetary policy ,Interest rate pass-through ,monetary policy ,Monetary economics ,interest rate pass-through ,labor search ,Interest rate ,Credit channel ,Loan ,New Keynesian economics ,Economics ,Dynamic stochastic general equilibrium ,Credit market friction ,Bond market ,Credit crunch ,media_common - Abstract
By introducing search and matching frictions in both the labor and the credit markets into a cash in advance New Keynesian DSGE model, we provide a novel explanation of the incomplete pass-through from policy rates to loan rates. We show that this phenomenon is ineradicable if banks possess some power in the bargaining over the loan rate of interest, if the cost of posting job vacancies is positive and if firms and banks sustain costs when searching for lines of credit and when posting credit vacancies, respectively. We also show that the presence of credit market frictions moderates the reactions of employment and wages to a monetary shock. Finally, we confirm the finding that pass-through incompleteness has limited short-term impacts on the transmission of monetary policy shocks to output and inflation.
- Published
- 2014