Credit Market Distortions, Asset Prices And Monetary Policy

Research output: Contribution to journal › Journal article › Research › peer-review

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Credit Market Distortions, Asset Prices And Monetary Policy. / Pfajfar, Damjan ; Santoro, Emiliano.

In: Macroeconomic Dynamics, Vol. 18, No. 3, 2014, p. 631-650.

Research output: Contribution to journal › Journal article › Research › peer-review

Harvard

Pfajfar, D & Santoro, E 2014, 'Credit Market Distortions, Asset Prices And Monetary Policy', Macroeconomic Dynamics, vol. 18, no. 3, pp. 631-650. https://doi.org/10.1017/S1365100512000557

APA

Pfajfar, D., & Santoro, E. (2014). Credit Market Distortions, Asset Prices And Monetary Policy. Macroeconomic Dynamics, 18(3), 631-650. https://doi.org/10.1017/S1365100512000557

Vancouver

Pfajfar D, Santoro E. Credit Market Distortions, Asset Prices And Monetary Policy. Macroeconomic Dynamics. 2014;18(3):631-650. https://doi.org/10.1017/S1365100512000557

Author

Pfajfar, Damjan ; Santoro, Emiliano. / Credit Market Distortions, Asset Prices And Monetary Policy. In: Macroeconomic Dynamics. 2014 ; Vol. 18, No. 3. pp. 631-650.

Bibtex

@article{2ef360c1022a4d149defab0d8c810588,
title = "Credit Market Distortions, Asset Prices And Monetary Policy",
abstract = "We study the conditions that ensure rational expectations equilibrium (REE) determinacy and expectational stability (E-stability) in a standard sticky-price model augmented with the cost channel. We allow for varying degrees of pass-through of the policy rate to bank-lending rates. Strong cost-side effects limit the size of the policy rate response to inflation that is consistent with determinacy, so that inflation-targeting policies may not be capable of ensuring REE uniqueness. In this case it is advisable to combine policy rate responses to inflation with an appropriate reaction to the output gap and/or firm profitability. The negative reaction of real activity and asset prices to inflationary shocks adds a negative force to inflation responses that counteracts the borrowing cost effect and prevents expectations of higher inflation from becoming self-fulfilling",
keywords = "Faculty of Social Sciences, Monetary Policy, Cost Channel, Asset Prices, Determinacy, E-stability, Monetary Policy, Cost Channel, Asset Prices, Determinacy, E-stability",
author = "Damjan Pfajfar and Emiliano Santoro",
year = "2014",
doi = "10.1017/S1365100512000557",
language = "English",
volume = "18",
pages = "631--650",
journal = "Macroeconomic Dynamics",
issn = "1365-1005",
publisher = "Cambridge University Press",
number = "3",

}

RIS

TY - JOUR

T1 - Credit Market Distortions, Asset Prices And Monetary Policy

AU - Pfajfar, Damjan

AU - Santoro, Emiliano

PY - 2014

Y1 - 2014

N2 - We study the conditions that ensure rational expectations equilibrium (REE) determinacy and expectational stability (E-stability) in a standard sticky-price model augmented with the cost channel. We allow for varying degrees of pass-through of the policy rate to bank-lending rates. Strong cost-side effects limit the size of the policy rate response to inflation that is consistent with determinacy, so that inflation-targeting policies may not be capable of ensuring REE uniqueness. In this case it is advisable to combine policy rate responses to inflation with an appropriate reaction to the output gap and/or firm profitability. The negative reaction of real activity and asset prices to inflationary shocks adds a negative force to inflation responses that counteracts the borrowing cost effect and prevents expectations of higher inflation from becoming self-fulfilling

AB - We study the conditions that ensure rational expectations equilibrium (REE) determinacy and expectational stability (E-stability) in a standard sticky-price model augmented with the cost channel. We allow for varying degrees of pass-through of the policy rate to bank-lending rates. Strong cost-side effects limit the size of the policy rate response to inflation that is consistent with determinacy, so that inflation-targeting policies may not be capable of ensuring REE uniqueness. In this case it is advisable to combine policy rate responses to inflation with an appropriate reaction to the output gap and/or firm profitability. The negative reaction of real activity and asset prices to inflationary shocks adds a negative force to inflation responses that counteracts the borrowing cost effect and prevents expectations of higher inflation from becoming self-fulfilling

KW - Faculty of Social Sciences

KW - Monetary Policy

KW - Cost Channel

KW - Asset Prices

KW - Determinacy

KW - E-stability

KW - Monetary Policy

KW - Cost Channel

KW - Asset Prices

KW - Determinacy

KW - E-stability

U2 - 10.1017/S1365100512000557

DO - 10.1017/S1365100512000557

M3 - Journal article

VL - 18

SP - 631

EP - 650

JO - Macroeconomic Dynamics

JF - Macroeconomic Dynamics

SN - 1365-1005

IS - 3

ER -

ID: 43214000