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Nominal Rigidities in Debt and Product Markets

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  • Carlos Garriga
  • Finn E. Kydland
  • Roman Šustek

Abstract

Standard models used for monetary policy analysis rely on sticky prices. Recently, the literature started to explore also nominal debt contracts. Focusing on mortgages, this paper compares the two channels of transmission within a common framework. The sticky price channel is dominant when shocks to the policy interest rate are temporary, the mortgage channel is important when the shocks are persistent. The first channel has significant aggregate effects but small redistributive effects. The opposite holds for the second channel. Using yield curve data decomposed into temporary and persistent components, the redistributive and aggregate consequences are found to be quantitatively comparable.

Suggested Citation

  • Carlos Garriga & Finn E. Kydland & Roman Šustek, 2016. "Nominal Rigidities in Debt and Product Markets," NBER Working Papers 22613, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:22613
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    Cited by:

    1. Costas Azariadis, 2018. "Credit Cycles and Business Cycles," Review, Federal Reserve Bank of St. Louis, vol. 100(1).
    2. Salomon Fiedler & Isabel Hanisch & Dr. Nils Jannsen Hanisch & Prof. Dr. Maik Wolters, 2017. "Effectiveness of Unconventional Monetary Policy in the Euro Area: An Assessment Based on a Literature Survey," Credit and Capital Markets, Credit and Capital Markets, vol. 50(4), pages 455-488.
    3. Claudio Borio & Boris Hofmann, 2017. "Is Monetary Policy Less Effective When Interest Rates Are Persistently Low?," RBA Annual Conference Volume (Discontinued), in: Jonathan Hambur & John Simon (ed.),Monetary Policy and Financial Stability in a World of Low Interest Rates, Reserve Bank of Australia.
    4. Hristov, Nikolay & Hülsewig, Oliver, 2017. "Unexpected loan losses and bank capital in an estimated DSGE model of the euro area," Journal of Macroeconomics, Elsevier, vol. 54(PB), pages 161-186.
    5. Cesa-Bianchi, Ambrogio & Rebucci, Alessandro, 2017. "Does easing monetary policy increase financial instability?," Journal of Financial Stability, Elsevier, vol. 30(C), pages 111-125.
    6. Adam M. Guren & Arvind Krishnamurthy & Timothy J. Mcquade, 2021. "Mortgage Design in an Equilibrium Model of the Housing Market," Journal of Finance, American Finance Association, vol. 76(1), pages 113-168, February.
    7. Polo, Alberto, 2021. "Imperfect pass-through to deposit rates and monetary policy transmission," Bank of England working papers 933, Bank of England.

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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