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Bank-Lending Standards, the Cost Channel and Inflation Dynamics

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Abstract

If firms borrow working capital to finance production, then nominal interest rates have a direct influence on in inflation dynamics, which appears to be the case empirically. However, interest rates may only partly mirror the cost of working capital. In this paper we explore the role of bank lending standards as a potential additional cost source and evaluate their empirical importance in explaining in ation dynamics in the US and in the euro area.

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Bibliographic Info

Paper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number 164.

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Length: 35
Date of creation: 08 Sep 2010
Date of revision:
Handle: RePEc:onb:oenbwp:164

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Keywords: New Keynesian Phillips Curve; Cost Channel; Bank Lending Standards; Bayesian;

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References

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  1. Oliver Hülsewig & Eric Mayer & Timo Wollmershäuser, 2006. "Bank Behavior and the Cost Channel of Monetary Transmission," CESifo Working Paper Series 1813, CESifo Group Munich.
  2. Chowdhury, Ibrahim & Hoffmann, Mathias & Schabert, Andreas, 2006. "Inflation dynamics and the cost channel of monetary transmission," European Economic Review, Elsevier, vol. 50(4), pages 995-1016, May.
  3. Johann Scharler & Sylvia Kaufmann, 2007. "Financial Systems and the Cost Channel Transmission of Monetary Policy Shocks," Money Macro and Finance (MMF) Research Group Conference 2006 67, Money Macro and Finance Research Group.
  4. Lown, Cara & Morgan, Donald P., 2004. "The Credit Cycle and the Business Cycle: New Findings Using the Loan Officer Opinion Survey," SIFR Research Report Series 27, Institute for Financial Research.
  5. Peter Tillmann, 2009. "Optimal Monetary Policy with an Uncertain Cost Channel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(5), pages 885-906, 08.
  6. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  7. Sylvia Kaufmann & Maria Teresa Valderrama, 2008. "Bank lending in Germany and the UK: are there differences between a bank-based and a market-based country?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(3), pages 266-279.
  8. Ravenna, Federico & Walsh, Carl E., 2006. "Optimal monetary policy with the cost channel," Journal of Monetary Economics, Elsevier, vol. 53(2), pages 199-216, March.
  9. Peter Tillmann, 2009. "Robust Monetary Policy with the Cost Channel," Economica, London School of Economics and Political Science, vol. 76(303), pages 486-504, 07.
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Cited by:
  1. Ernestas Virbickas, 2012. "New Keynesian Phillips Curve in Lithuania," Bank of Lithuania Working Paper Series 14, Bank of Lithuania.
  2. Maral Shamloo, 2011. "Inflation Dynamics in FYR Macedonia," IMF Working Papers 11/287, International Monetary Fund.
  3. Muhammad Naveed Tahir, 2011. "Inflation Targeting, Exchange Rate and Financial Globalization," Working Papers 1130, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  4. Christopher Tsoukis & George Kapetanios & Joseph Pearlman, 2011. "Elusive Persistence: Wage And Price Rigidities, The New Keynesian Phillips Curve And Inflation Dynamics," Journal of Economic Surveys, Wiley Blackwell, vol. 25(4), pages 737-768, 09.
  5. Muhammad Naveed Tahir, 2011. "Inflation Targeting, Exchange Rate and Financial Globalization," Working Papers halshs-00646601, HAL.
  6. Martina Basarac & Blanka Škrabiæ & Petar Soriæ, 2011. "The Hybrid Phillips Curve: Empirical Evidence from Transition Economies," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 61(4), pages 367-383, August.
  7. Alan Domić, 2012. "An application of New Keynesian models to inflation in Croatia," Business Systems Research, Society for Promotion of Business Information Technology (BIT), vol. 3(2), pages 6-13.

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