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Cost channel, determinacy, and monetary policy in a two-country new Keynesian model

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  • Ida, Daisuke

Abstract

This study examines the role of the cost channel of monetary policy in a two-country new Keynesian model. The results demonstrate that the presence of the cost channel significantly affects worldwide equilibrium determinacy. A greater foreign cost channel widens worldwide equilibrium indeterminacy when home and foreign central banks respond strongly to inflation and the output gap. This phenomenon is exacerbated when a greater cost channel exists simultaneously in both countries.

Suggested Citation

  • Ida, Daisuke, 2023. "Cost channel, determinacy, and monetary policy in a two-country new Keynesian model," Economic Modelling, Elsevier, vol. 119(C).
    • Handle: RePEc:eee:ecmode:v:119:y:2023:i:c:s0264999322003492
    DOI: 10.1016/j.econmod.2022.106112
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    More about this item

    Keywords

    Cost channel; Equilibrium determinacy; Financial market imperfections; Taylor rule; Two-country new Keynesian model;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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