Sticky Discount Rates

Masao Fukui, Niels Gormsen and Kilian Huber

No 32238, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We show that firms' nominal required returns to capital (i.e., their discount rates) are sticky with respect to expected inflation. Such nominally sticky discount rates imply that increases in expected inflation directly lower firms' real discount rates and thereby raise real investment. We analyze the macroeconomic implications of sticky discount rates using a New Keynesian model. The model naturally generates investment-consumption comovement in response to household demand shocks and higher investment in response to government spending. Sticky discount rates imply that inflation has real effects, even absent other nominal rigidities, making them a distinct source of monetary non-neutrality. At the same time, sticky discount rates make the short-term interest rate less effective at stimulating investment. Optimal monetary policy focuses on inflation expectations and permanently lowers the long-run inflation target in response to expansionary shocks, even when shocks are temporary.

JEL-codes: D22 E22 E23 E31 E32 E43 E44 E52 E58 G12 G31 (search for similar items in EconPapers)
Date: 2024-03
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge and nep-mac
Note: AP CF EFG IFM IO ME PR
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.nber.org/papers/w32238.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:32238

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w32238
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().