BIROn - Birkbeck Institutional Research Online

    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.

    4184.pdf - Published Version of Record

    Download (501kB) | Preview


    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.


    Item Type: Article
    Keyword(s) / Subject(s): Cost channel, investment finance, Taylor rule, indeterminacy
    School: Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School
    Research Centres and Institutes: Applied Macroeconomics, Birkbeck Centre for
    Depositing User: Yunus Aksoy
    Date Deposited: 07 Oct 2011 08:39
    Last Modified: 02 Aug 2023 16:56


    Activity Overview
    6 month trend
    6 month trend

    Additional statistics are available via IRStats2.

    Archive Staff Only (login required)

    Edit/View Item Edit/View Item