Effect of a cost channel on monetary policy transmission in a behavioral New Keynesian model

Daisuke Ida and Kenichi Kaminoyama

MPRA Paper from University Library of Munich, Germany

Abstract: This paper explores the impact of the cost channel on the monetary transmission mechanism in a behavioral New Keynesian model. In contrast to previous studies, we demonstrate that the degree of cognitive discounting significantly affects the determinacy condition in the model with a cost channel. Second, we show that the price puzzle arises only when a large value of the cost channel parameter, which is not empirically supported, is introduced with a high degree of cognitive discounting. Third, we find that the degree of cognitive discounting significantly impacts the effect of the cost channel on optimal monetary policy.

Keywords: Cognitive discounting; New Keynesian model; Cost channel; Monetary policy rules; Price puzzle (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2024-03-12
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:120424

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