Journal article
Optimal Monetary Policy with Countercyclical Credit Spreads
Journal of money, credit and banking, v 51(4), pp 787-829
01 Jun 2019
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
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 show that 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.
Metrics
Details
- Title
- Optimal Monetary Policy with Countercyclical Credit Spreads
- Creators
- Marco Airaudo - Drexel Univ, LeBow Coll Business, Sch Econ, Philadelphia, PA 19104 USAMaria Pia Olivero - Drexel Univ, LeBow Coll Business, Sch Econ, Philadelphia, PA 19104 USA
- Publication Details
- Journal of money, credit and banking, v 51(4), pp 787-829
- Publisher
- Wiley
- Number of pages
- 43
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Web of Science ID
- WOS:000468056900002
- Scopus ID
- 2-s2.0-85060213008
- Other Identifier
- 991019168153804721
UN Sustainable Development Goals (SDGs)
This publication has contributed to the advancement of the following goals:
Source: SDGs in the Output
InCites Highlights
Data related to this publication, from InCites Benchmarking & Analytics tool:
- Web of Science research areas
- Business, Finance
- Economics