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    Investment cost channel and monetary transmission

    Aksoy, Yunus and Basso, H. and Coto-Martinez, J. (2011) Investment cost channel and monetary transmission. Central Bank Review 11 (2), pp. 1-13. ISSN 1303-0701.

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    Abstract

    We show that a standard DSGE model with investment cost channels has important model stability and policy implications. Our analysis suggests that in economies characterized by supply side well as demand side channels of monetary transmission, policymakers may have to resort to a much more aggressive stand against inflation to obtain locally unique equilibrium. In such an environment targeting output gap may cause model instability. We also show that it is difficult to distinguish between the New Keynesian model and labor cost channel only case, while with investment cost channel differences are more significant. This result is important as it suggests that if one does not take into account the investment cost channel, one is underestimating the importance of supply side effects.

    Metadata

    Item Type: Article
    Keyword(s) / Subject(s): Cost channel, investment finance, Taylor rule, indeterminacy
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Research Centre: Applied Macroeconomics, Birkbeck Centre for
    Depositing User: Yunus Aksoy
    Date Deposited: 07 Oct 2011 08:39
    Last Modified: 06 Dec 2016 14:49
    URI: http://eprints.bbk.ac.uk/id/eprint/4184

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