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How should monetary policy respond to changes in financial conditions? In this paper we consider a simple model where firms are subject to idiosyncratic shocks which may force them to default on their debt. Firms’ assets and liabilities are denominated in nominal terms and predetermined when...
Persistent link: https://www.econbiz.de/10003969263
Recent empirical evidence by Fair (2002,2005) and Giordani (2003) shows that a positive inflation shock with the … include wealth effects. It is demonstrated that, following an inflation shock, the decline of output coupled with passive …
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a monetary shock, contrary to the standard result. The reason is that an interest rate rule targeting the consumer price … condition for the model to display persistence of the real variables after a shock to the interest rate rule …
Persistent link: https://www.econbiz.de/10014147272
How should monetary policy respond to changes in financial conditions? In this paper we consider a simple model where firms are subject to idiosyncratic shocks which may force them to default on their debt. Firms' assets and liabilities are denominated in nominal terms and predetermined when...
Persistent link: https://www.econbiz.de/10013116576
The recent macroeconomic literature stresses the importance of managing heterogeneous expectations in the formulation of monetary policy. We use a stylized macro model of Howitt (1992) to investigate inflation dynamics under alternative interest rate rules when agents have heterogeneous...
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