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Monetary Shocks and Central Bank Liquidity with Credit Market Imperfections

Pierre-Richard Agénor () and Koray Alper

Centre for Growth and Business Cycle Research Discussion Paper Series from Economics, The University of Manchester

Abstract: This paper analyzes the transmission process of monetary policy in a closed-economy New Keynesian model with monopolistic banking, credit market imperfections, and a cost channel. Lending rates incorporate a risk premium, which depends on firms' net worth and cyclical output. The supply of bank loans is perfectly elastic at the prevailing bank rate and so is the provision of central bank liquidity at the official policy rate. The model is calibrated for a middle-income country. Numerical simulations show that credit market imperfections and sluggish adjustment of bank deposit rates (rather than lending rates) may impart a substantial degree of persistence in the response of output and inflation to monetary shocks.

Pages: 62 pages
Date: 2009
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Related works:
Journal Article: Monetary shocks and central bank liquidity with credit market imperfections (2012) Downloads
Working Paper: Monetary Shocks and Central Bank Liquidity with Credit Market Imperfections (2009) Downloads
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