Cost Channel, Interest Rate Pass-Through and Optimal Monetary Policy under Zero Lower Bound

Siddhartha Chattopadhyay

Working Papers from eSocialSciences

Abstract: This paper analyzes the optimal discretionary monetary policy under Zero Lower Bound (ZLB) for varying degree of interest rate pass-through. This paper finds that (i) exit date from ZLB becomes endogenous due to the trade-off between output gap and inflation introduced by the cost channel; (ii) presence of cost channel delays the exit from ZLB compared to models without cost channel; and (iii) exit date rises monotonically with the magnitude of demand shock and degree of interest rate pass-through. [WP-2016-012]

Keywords: New-Keynesian Model; Inflation Target; Liquidity Trap (search for similar items in EconPapers)
Date: 2016-07
Note: Institutional Papers
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Citations: View citations in EconPapers (2)

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