Cost Channel, Interest Rate Pass-Through and Optimal Monetary Policy under Zero Lower Bound

Published By: Indira Gandhi Institute of Development Research on | Published Date: May , 2016

This paper analyzes the optimal discretionary monetary policy under Zero Lower Bound (ZLB) for varying degree of interest rate pass-through. This paper finds that (i) exit date from ZLB becomes endogenous due to the trade-off between output gap and inflation introduced by the cost channel; (ii) presence of cost channel delays the exit from ZLB compared to models without cost channel; and (iii) exit date rises monotonically with the magnitude of demand shock and degree of interest rate pass-through. [WP-2016-012]

Author(s): Siddhartha Chattopadhyay | Posted on: Jul 13, 2016 | Views() | Download (441)

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