Effect of a cost channel on monetary policy transmission in a behavioral New Keynesian model

Ida, Daisuke and Kaminoyama, Kenichi (2024): Effect of a cost channel on monetary policy transmission in a behavioral New Keynesian model.

Abstract

This paper explores the impact of the cost channel on the monetary transmission mechanism in a behavioral New Keynesian model. In contrast to previous studies, we demonstrate that the degree of cognitive discounting significantly affects the determinacy condition in the model with a cost channel. Second, we show that the price puzzle arises only when a large value of the cost channel parameter, which is not empirically supported, is introduced with a high degree of cognitive discounting. Third, we find that the degree of cognitive discounting significantly impacts the effect of the cost channel on optimal monetary policy.

• Item Type: MPRA Paper
• Language: English
• Keywords: Cognitive discounting; New Keynesian model; Cost channel; Monetary policy rules; Price puzzle
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies

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