This paper explores whether the cost channel solves the price puzzle. We set-up a New Keynesian DSGE model and estimate it for the euro area by adopting a minimum distance approach. Our findings suggest that - under certain parameter restrictions which are not rejected by the data - the cost...

This paper presents a New Keynesian model that dwells on the role of banks in the cost channel of monetary policy. Banks extend loans to firms in an environment of monopolistic competition by setting the loan rate according to a Calvo-type staggered price setting approach, which means that the...

This paper addresses the credit channel in Germany by using aggregate data. We present a stylized model of the banking firm, in which banks decide on their loan supply in the light of uncertainty about the future course of monetary policy. Applying a vector error correction model (VECM), we...