Cost Channel, Interest Rate Pass-Through and Optimal Policy under Zero Lower Bound
Siddhartha Chattopadhyay () and
Taniya Ghosh ()
Working Papers from eSocialSciences
This paper analyzes optimal monetary policy under zero lower bound in the presence of cost channel. Cost channel introduces trade-oÂ¤ between output and inflation when economy is out of ZLB. As a result, exit time both under discretion and commitment is endogenous in the presence of cost channel. Paper also finds that commitment outperforms discretion by promising future boom and inflation and a T-only policy closely replicates commitment both under presence and absence of cost channel.
Keywords: New-Keynesian Model; Cost Channel; Liquidity Trap; canonical; workhorse; monetary policy; communicated; inflation; discretion; replicate; commitment; post-exit; prescription; divine coincidence; literature (search for similar items in EconPapers)
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Working Paper: Cost Channel, Interest Rate Pass-Through and Optimal Policy under Zero Lower Bound (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ess:wpaper:id:11698
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