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The effects of monetary policy shocks in credit and labor markets with search and matching frictions

Giuseppe Ciccarone, Francesco Giuli () and Danilo Liberati ()

No 151, Working Papers from University of Rome La Sapienza, Department of Public Economics

Abstract: By introducing search and matching frictions in both the labor and the credit markets into acash in advance New Keynesian DSGE model, we provide a novel explanation of the incompletepass-through from policy rates to loan rates. We show that this phenomenon is ineradicable ifbanks possess some power in the bargaining over the loan rate of interest, if the cost of postingjob vacancies is positive and if firms and bank sustain costs when searching for lines of creditand when posting credit vacancies, respectively. We also show that the presence of credit marketfrictions moderates the reactions of output and wages to a monetary shock, and that thetransmission of monetary policy shocks to output and inflation is more relevant than suggestedby the recent literature.

Keywords: interest rate pass-through; search and matching; credit market frictions. (search for similar items in EconPapers)
JEL-codes: E43 E13 E24 E44 (search for similar items in EconPapers)
Pages: 33
Date: 2012-01
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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