Collateral Constraints, Sticky Wages, and Monetary Policy

This paper investigates the role of collateral constraints in the transmission of monetary policy shocks in a two-sector sticky price general equilibrium model with nondurable and durable goods. While many researchers have stressed the role of collateral constraints in one-sector sticky price model, it has been relatively less explored in the two-sector sticky price model. This study shows that nominal wage rigidity is crucial for collateral constraints to accelerate the effects of monetary policy shocks on durable spending in the two-sector sticky price general equilibrium model.