Journal
ECONOMIC MODELLING
Volume 36, Issue -, Pages 645-657Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.econmod.2013.02.040
Keywords
Interest rate pass-through; Monetary policy; Labor search; Credit market frictions
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By introducing search and matching frictions in both the labor and the credit markets into a cash in advance New Keynesian DSGE model, we provide a novel explanation of the incomplete pass-through from policy rates to loan rates. We show that this phenomenon is ineradicable if banks possess some power in the bargaining over the loan rate of interest, if the cost of posting job vacancies is positive and if firms and banks sustain costs when searching for lines of credit and when posting credit vacancies, respectively. We also show that the presence of credit market frictions moderates the reactions of employment and wages to a monetary shock. Finally, we confirm the finding that pass-through incompleteness has limited short-term impacts on the transmission of monetary policy shocks to output and inflation. (C) 2013 Elsevier B.V. All rights reserved.
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