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The time-varying cost channel of monetary transmission

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  • Tillmann, Peter

Abstract

This paper studies the time-varying role of the cost channel of monetary transmission, i.e. the supply-side effect of monetary policy based on firms' costs of holding working capital. For that purpose, we provide rolling-window estimates of an augmented New Keynesian Phillips curve and show that the cost channel exhibits important time-varying dynamics. We find, as a general pattern, that the cost channel was most important in the pre-Volcker period and less important in the Volcker-Greenspan era. Recently, however, the cost channel regained importance. Since the cost channel is based on the transmission of policy impulses through bank lending, it is likely that the time-varying cost channel reflects the cyclical nature of financial frictions.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 28 (2009)
Issue (Month): 6 (October)
Pages: 941-953

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Handle: RePEc:eee:jimfin:v:28:y:2009:i:6:p:941-953

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Web page: http://www.elsevier.com/locate/inca/30443

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Keywords: Cost channel Monetary transmission Inflation dynamics New Keynesian Phillips curve Rolling-window GMM Financial frictions;

References

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Cited by:
  1. Faiz ur, rehman & Wasim, shahid malik, 2010. "A structural VAR (SVAR) approach to cost channel of monetary policy," MPRA Paper 32349, University Library of Munich, Germany, revised 09 Feb 2011.
  2. Olivero, María Pía & Li, Yuan & Jeon, Bang Nam, 2011. "Consolidation in banking and the lending channel of monetary transmission: Evidence from Asia and Latin America," Journal of International Money and Finance, Elsevier, vol. 30(6), pages 1034-1054, October.
  3. Malikane, Christopher, 2012. "Inflation dynamics and the cost channel in emerging markets," MPRA Paper 42688, University Library of Munich, Germany.
  4. Jochen Michaelis, 2012. "Optimal Monetary Policy in a Currency Union: The Role of the Cost Channel," MAGKS Papers on Economics 201203, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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