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The Real Interest Rate Channel is Structural in Contemporary New-Keynesian Models

Joshua Brault () and Hashmat Khan ()

No 19-05, Carleton Economic Papers from Carleton University, Department of Economics

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.

Keywords: New-Keynesian models; monetary transmission mechanism; real interest rate (search for similar items in EconPapers)
JEL-codes: E24 E32 E43 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2019-07-06
New Economics Papers: this item is included in nep-dge, nep-mac and nep-ore
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Published: Carleton Economic Papers

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