Money and Credit in the New Keynesian Model
Sven Offick and
Hans-Werner Wohltmann
Review of Economics, 2014, vol. 65, issue 3, 253-280
Abstract:
This paper integrates a money and credit market into a static approximation of the baseline New Keynesian model based on a money-and-credit-in-the-utility approach, in which real balances and borrowing contribute to the household’s utility. In this framework, the central bank has no direct control over the interest rate on bonds. Instead, the central bank’s instrument variables are the monetary base and the refinancing rate, i. e. the rate at which the central bank provides loans to the banking sector. Our approach gives rise to a credit channel, in which current and expected future interest rates on the bond and loan market directly affect current goods demand. The credit channel amplifies the output effects of isolated monetary disturbances. Taking changes in private (inflation and interest rate) expectations into account, we find that - contrarily to BERNANKE and BLINDER (1988) - the credit channel may also dampen the output effects of monetary disturbances. The expansionary effects of a monetary expansion may be substantially diminished if the monetary disturbance is accompanied by a contractionary credit shock. In a dynamic version of our model, in which expectations are formed endogenously, we find that the credit channel amplifies output responses.
Keywords: Money; Loan; Money-and-credit-in-the-utility; Credit channel; New Keynesian model; Monetary policy (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations:
Downloads: (external link)
https://doi.org/10.1515/roe-2014-0304 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.
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:lus:reveco:v:65:y:2014:i:3:p:253-280
Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/roe/html
DOI: 10.1515/roe-2014-0304
Access Statistics for this article
Review of Economics is currently edited by Michael Berlemann
More articles in Review of Economics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().