 Monetary Transmission in the New Economy: Service Life of Capital, Transmission Channels and the Speed of AdjustmentUlf von Kalckreuth and Jürgen Schröder No 2002,16, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank Abstract: This paper evaluates the consequences of accelerated technical progress for monetary transmission and the speed of adjustment in the real economy. With a decreasing service life, the long term rate relevant to real demand will resemble more closely the money market rate. We make the investment decision explicitly dependent on a long-term rate for a credit contract of finite maturity. This, along with perfect foresight, leads to a differentialdifference equation for the dynamics of transmission, which is new to the economics literature. Our analysis shows that a reduced service life of capital leads to an increased speed of adjustment of the real sector, which goes along with a reduced volatility of the exchange rate. Wherereas the interest channel becomes stronger, the exchange-rate channel loses importance. The grip of monetary policy becomes more direct: while demand will react more sharply at the beginning, the transmission process will be completed earlier. All in all, our answers as to the feasibility of monetary policy and the stability of the financial system are rather optimistic. Keywords: Monetäre Transmission; Zinsstruktur; New Economy; Monetary Transmission; Interest-Rate Structure; New Economy (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdp1:4181 Access Statistics for this paper More papers in Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank Contact information at EDIRC. |
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