Transmitting Shocks To The Economy: The Contribution Of Interest And Exchange Rates And The Credit Channel
AbstractUnderstanding the transmission channels of shocks is critical for successful policy response. This paper develops a dynamic general equilibrium model to assess the relative importance of the interest rate, the exchange rate and the credit channels in transmitting shocks in an open economy. The relative contribution of each channel is determined by comparing the impulse responses when the relevant channel is suppressed with the impulse responses when all three channels are operating. The results suggest that all three channels contribute to business cycle fluctuations and the transmission of shocks to the economy. But the magnitude of the impact of the interest rate channel crucially depends on the inflation process and the structure of the economy.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2007-03.
Length: 35 pages
Date of creation: Feb 2007
Date of revision:
Contact details of provider:
Postal: Crawford Building, Lennox Crossing, Building #132, Canberra ACT 0200
Phone: +61 2 6125 4705
Fax: +61 2 6125 5448
Web page: http://cama.crawford.anu.edu.au
More information through EDIRC
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Marco GALLEGATI, 2002.
"Financial Constraints and the Balance Sheet Channel: a Re-Interpretation,"
161, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
- Marco Gallegati, 2005. "Financial constraints and the balance sheet channel: a re-interpretation," Applied Economics, Taylor and Francis Journals, vol. 37(16), pages 1925-1933.
- Marco Gallegati, 2001. "Financial constraints and the balance sheet channel: a re-interpretation," Heterogeneity and monetary policy 0112, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica.
- McCallum, Bennett T. & Nelson, Edward, 1999.
"Nominal income targeting in an open-economy optimizing model,"
Journal of Monetary Economics,
Elsevier, vol. 43(3), pages 553-578, June.
- Bennett T. McCallum & Edward Nelson, 2000. "Nominal Income Targeting in an Open-Economy Optimizing Model," NBER Working Papers 6675, National Bureau of Economic Research, Inc.
- McCallum, B.T. & Nelson, E., 1998. "Nominal Income Targeting in an Open-Economy Optimizing Model," Papers 644, Stockholm - International Economic Studies.
- McCallum, Bennett T. & Nelson, Edward, 1998. "Nominal Income Targeting in an Open-Economy Optimizing Model," Seminar Papers 644, Stockholm University, Institute for International Economic Studies.
- McCallum, Bennett T & Nelson, Edward, 2000.
"Monetary Policy for an Open Economy: An Alternative Framework with Optimizing Agents and Sticky Prices,"
Oxford Review of Economic Policy,
Oxford University Press, vol. 16(4), pages 74-91, Winter.
- Ryo Kato, 2001. "Matlab code for the McCallum/Nelson model," QM&RBC Codes 111, Quantitative Macroeconomics & Real Business Cycles.
- Bennett T McCallum & Edward Nelson, 2001. "Monetary Policy for an Open Economy: An Alternative Framework with Optimising Agents and Sticky Prices," Discussion Papers 05, Monetary Policy Committee Unit, Bank of England.
- McCallum, Bennett T & Nelson, Edward, 2001. "Monetary Policy for an Open Economy: An Alternative Framework with Optimizing Agents and Sticky Prices," CEPR Discussion Papers 2756, C.E.P.R. Discussion Papers.
- Bennett T. McCallum & Edward Nelson, 2001. "Monetary Policy for an Open Economy: An Alternative Framework with Optimizing Agents and Sticky Prices," NBER Working Papers 8175, National Bureau of Economic Research, Inc.
- Ramirez, Carlos D., 2004. "Monetary policy and the credit channel in an open economy," International Review of Economics & Finance, Elsevier, vol. 13(4), pages 363-369.
- Dungey, Mardi & Pagan, Adrian, 2000. "A Structural VAR Model of the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 76(235), pages 321-42, December.
- Huang, Angela & Margaritis, Dimitri & Mayes, David, 2001. "Monetary policy rules in practice: Evidence from New Zealand," Research Discussion Papers 18/2001, Bank of Finland.
- John B. Taylor, 1995.
"The monetary transmission mechanism: an empirical framework,"
Working Papers in Applied Economic Theory
95-07, Federal Reserve Bank of San Francisco.
- John B. Taylor, 1995. "The Monetary Transmission Mechanism: An Empirical Framework," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 11-26, Fall.
- repec:fth:bfdipa:18/2001 is not listed on IDEAS
- Sydney Ludvigson & Charles Steindel & Martin Lettau, 2002. "Monetary policy transmission through the consumption-wealth channel," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 117-133.
- Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Cama Admin).
If references are entirely missing, you can add them using this form.