Smoothed interest rate setting by central banks and staggered loan contracts

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

I investigate a new source of economic stickiness: namely, staggered loan interest rate contracts under monopolistic competition. This study introduces this mechanism into a standard new Keynesian model. Simulations show that a response to a financial shock is greatly amplified by the staggered loan contracts, although a response to a productivity, cost-push or monetary policy shock is not much affected. I derive an approximated loss function and analyse optimal monetary policy. Unlike other models, the function includes a quadratic loss of the first-order difference in loan rates. Thus, central banks have an incentive to smooth the policy rate.

Original languageEnglish
Pages (from-to)162-183
Number of pages22
JournalEconomic Journal
Volume125
Issue number582
DOIs
Publication statusPublished - 2015 Feb 1

Fingerprint

Interest rates
Loans
Central bank
Stickiness
Monetary policy shocks
New Keynesian model
Simulation
Loan rates
Optimal monetary policy
Economics
Financial shocks
Monopolistic competition
Incentives
Loss function
Productivity
Costs

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

Smoothed interest rate setting by central banks and staggered loan contracts. / Teranishi, Yuuki.

In: Economic Journal, Vol. 125, No. 582, 01.02.2015, p. 162-183.

Research output: Contribution to journalArticle

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