The financial accelerator and monetary policy rules

Gunes Kamber and Christoph Thoenissen

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: The ability of financial frictions to amplify the output response of monetary policy, as in the financial accelerator model of Bernanke et al. (1999), is analyzed for a wider class of policy rules where the policy interest rate responds to both inflation and the output gap. When policy makers respond to the output gap as well as inflation, the standard financial accelerator model reacts less to an interest rate shock than does a comparable model without an operational financial accelerator mechanism. In recessions, when firm-specific volatility rises, financial acceleration due to financial frictions is further reduced, even under pure inflation targeting.

Pages: 23 pages
Date: 2011-12
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Related works:
Journal Article: The financial accelerator and monetary policy rules (2012)
Working Paper: The financial accelerator and monetary policy rules (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2011-38

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