Intermediation Markups and Monetary Policy Passthrough
Andreas Schrimpf and
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Semyon Malamud: Ecole Polytechnique Federale de Lausanne
No 812, 2017 Meeting Papers from Society for Economic Dynamics
We introduce intermediation frictions into the classical monetary model with fully flexible prices. Trade in financial assets happens through intermediaries who bargain over a full set of state-contingent claims with their customers. Monetary policy is redistributive and affects intermediaries' ability to extract rents; this opens up a new channel for transmission of monetary shocks into rates in the wider economy, which may be labelled the markup channel of monetary policy. Passthrough efficiency depends crucially on the anticipated sensitivity of future monetary policy to future stock market returns (the ``Central Bank Put"). The strength of this put determines the room for maneuver of monetary policy: when it is strong, monetary policy is destabilizing and may lead to market tantrums where deteriorating risk premia, illiquidity and markups mutually reinforce each other; when the put is too strong, passthrough becomes fully inefficient and a surprise easing even begets a rise in real rates.
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Working Paper: Intermediation markups and monetary policy pass-through (2018)
Working Paper: Intermediation Markups and Monetary Policy Passthrough (2016)
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