Nominal Debt Dynamics, Credit Constraints and Monetary Policy
AbstractWe 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.
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Bibliographic InfoArticle provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.
Volume (Year): 7 (2007)
Issue (Month): 1 (January)
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Web page: http://www.degruyter.com
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- Fujiwara, Ippei & Teranishi, Yuki, 2011.
"Real exchange rate dynamics revisited: A case with financial market imperfections,"
Journal of International Money and Finance,
Elsevier, vol. 30(7), pages 1562-1589.
- Ippei Fujiwara & Yuki Teranishi, 2010. "Real exchange rate dynamics revisited: a case with financial market imperfections," Globalization and Monetary Policy Institute Working Paper 62, Federal Reserve Bank of Dallas.
- Tatiana Kirsanova & Jack Rogers, 2013. "Fixed versus Variable Rate Debt Contracts and Optimal Monetary Policy," Discussion Papers 1306, Exeter University, Department of Economics.
- Christopher Allsopp & David Vines, 2008. "Fiscal Policy, intercountry adjustment and the real exchange rate within Europe," European Economy - Economic Papers 344, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
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