Monetary Policy Transmission with Endogenous Central Bank Responses in TANK

Lilia Maliar and Christopher Naubert

Staff Working Papers from Bank of Canada

Abstract: We study how the transmission of monetary policy innovations is affected by the endogenous response of the central bank to macroeconomic aggregates in a two-agent New Keynesian model. We focus on how the stance of monetary policy and the fraction of savers in the economy affect transmission. We show that the indirect effect of an innovation is negative when the indirect real rate effect exceeds the indirect income effect. The relative magnitude of the indirect real rate effect increases with the share of savers and the strength of the central bank’s response and decreases with the horizon of the innovation.

Keywords: Economic models; Interest rates; Monetary policy; Monetary policy transmission (search for similar items in EconPapers)
JEL-codes: C61 C62 C63 E31 E52 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2025-08
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:25-21

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