The Real Interest Rate Channel Is Structural in Contemporary New‐Keynesian Models: A Note

Joshua Brault and Hashmat Khan ()

Journal of Money, Credit and Banking, 2022, vol. 54, issue 5, 1551-1563

Abstract: The monetary transmission mechanism in a New‐Keynesian model with contemporary features is put to scrutiny. In contrast to Rupert and Sustek (2019), we find that the real interest rate channel is structural when the model contains empirically realistic frictions on the flow of investment. A monetary contraction (expansion) is always followed by an increase (decrease) in the real interest rate. The monetary transmission mechanism indeed operates through the real interest rate channel in this class of models.

Date: 2022
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https://doi.org/10.1111/jmcb.12894

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:54:y:2022:i:5:p:1551-1563

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