Liquidity Effects and Cost Channels in Monetary Transmission

Yunus Aksoy, Henrique Basso and Javier Coto Matinez
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Javier Coto Matinez: City University

No 902, Birkbeck Working Papers in Economics and Finance from Birkbeck, Department of Economics, Mathematics & Statistics

Abstract: We study liquidity effects and cost channels within a model of nominal rigidities and imperfect competition that gives explicit role for money-credit markets and investment decisions. We find that cost channels matter for monetary transmission, amplifying the impact of supply shocks and dampening the effects of demand shocks. Liquidity effects only obtain when the policy is specified by an interest rate policy rule and money-credit conditions are determined endogenously. We also find that determinacy issues are particularly relevant when models include the cost channel and explicit money-credit markets.

Date: 2009-01
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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https://eprints.bbk.ac.uk/id/eprint/7556 First version, 2009 (application/pdf)

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