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    Nominal debt dynamics, credit constraints and monetary policy

    Wright, Stephen and Graham, L. (2007) Nominal debt dynamics, credit constraints and monetary policy. The B.E. Journal of Macroeconomics 7 (1), ISSN 1935-1690.

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    Abstract

    We construct a dynamic general equilibrium model in which household debt is sticky in nominal terms and debtor households are credit constrained. Interest payments on debt contracts may be at floating rates or fixed for the duration of the contract. A key result is that a simple static Taylor Rule can result in a prolonged period in which real interest rates are cut rather than raised in response to an inflationary shock. We show how the proportion of fixed rate contracts affects the monetary transmission mechanism and its implications for the distributional effects of an inflationary shock.

    Metadata

    Item Type: Article
    School: School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Depositing User: Sarah Hall
    Date Deposited: 18 May 2020 13:36
    Last Modified: 18 May 2020 13:36
    URI: https://eprints.bbk.ac.uk/id/eprint/31957

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