If firms borrow working capital to finance production, then nominal interest rates have a direct influence on inflation dynamics, which appears to be the case empirically. However, interest rates may only partly mirror the cost of working capital. In this paper we explore the role of bank...

In this paper we quantitatively evaluate the hypothesis that the Great Moderation is partly the result of a less activist monetary policy. We simulate a New Keynesian model where the central bank can only observe a noisy estimate of the output gap and find that the less pronounced reaction of...

We integrate banks and the coexistence of bank and bond financing into an otherwise standard New Keynesian Framework with capital, and derive the microfounded, bank-augmented IS and Phillips Curves for the corresponding two-sector economy. We study the interplay of monetary and macroprudential...

We examine "Forward Guidance Contracts", which make central bankers' utility contingent on the precision of interest-rate forecasts. We integrate those contracts into the New Keynesian Framework and study how they can be used to overcome a liquidity trap. We establish the properties of simple...

The bank lending channel (BLC) holds that monetary policy is transmitted through the supply of bank loans. While the original formulation of the BLC stresses an imperfect substitution between reservable and non-reservable sources of banks' funding, as the transmission mechanism, recent...