Logo
Munich Personal RePEc Archive

Cost Channel, Interest Rate Pass-Through and Optimal Policy under Zero Lower Bound

Chattopadhyay, Siddhartha and Ghosh, Taniya (2016): Cost Channel, Interest Rate Pass-Through and Optimal Policy under Zero Lower Bound.

[thumbnail of MPRA_paper_72762.pdf]
Preview
PDF
MPRA_paper_72762.pdf

Download (328kB) | Preview

Abstract

This paper analyzes optimal monetary policy under zero lower bound in the presence of cost channel. Cost channel introduces trade-off between output and inflation when economy is out of ZLB. As a result, exit time both under discretion and commitment is endogenous in the presence of cost channel. We also find that commitment outperforms discretion by promising future boom and inflation and a T-only policy closely replicates commitment both under presence and absence of cost channel. Moreover, the exit date (from ZLB) under discretion, commitment and T-only policy rises with the magnitude of demand shock given the degree of interest rate pass-through irrespective if the cost channel is present. We also show that, while exit date both under discretion and T-only policy rises with the degree of interest rate pass-through/credit market imperfection, it falls under commitment given demand shock.

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.