EconPapers    
Economics at your fingertips  
 

Loan production and monetary policy

Luca Deidda (), Jose Galdon-Sanchez () and Miguel Casares ()

Working Paper CRENoS from Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia

Abstract: We examine optimal monetary policy in a New Keynesian model with unemployment and financial frictions where banks produce loans using equity as collateral. Firms and households demand loans to finance externally a fraction of their flows of expenditures. Our findings show amplifying business-cycle effects of a more rigid loan production technology. In the monetary policy analysis, the optimal rule clearly outperforms Taylor (1993) rule. The optimized interest-rate response to the external finance premium turns significantly negative when either banking rigidities are high or when financial shocks are the only source of business cycle fluctuations.

Keywords: external finance; optimal monetary policy; business cycles (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://crenos.unica.it/crenos/node/6768
http://crenos.unica.it/crenos/sites/default/files/WP16-12.pdf (application/pdf)

Related works:
Journal Article: LOAN PRODUCTION AND MONETARY POLICY (2019) Downloads
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:cns:cnscwp:201612

Access Statistics for this paper

More papers in Working Paper CRENoS from Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia Contact information at EDIRC.
Bibliographic data for series maintained by Antonello Pau ().

 
Page updated 2019-04-17
Handle: RePEc:cns:cnscwp:201612