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 InfoPaper provided by University College London in its series Open Access publications from University College London with number http://discovery.ucl.ac.uk/3839/.
Date of creation: 2007
Date of revision:
Publication status: Published in The B.E. Journal of Macroeconomics (2007) v.7, p.-
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Other versions of this item:
- Liam Graham & Stephen Wright, 2007. "Nominal Debt Dynamics, Credit Constraints and Monetary Policy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 9.
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
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