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Effect of a cost channel on monetary policy transmission in a behavioral New Keynesian model

Author

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  • Ida, Daisuke
  • Kaminoyama, Kenichi

Abstract

This paper explores the impact of the cost channel on the monetary transmission mechanism in a behavioral New Keynesian model. In contrast to previous studies, we demonstrate that the degree of cognitive discounting significantly affects the determinacy condition in the model with a cost channel. Second, we show that the price puzzle arises only when a large value of the cost channel parameter, which is not empirically supported, is introduced with a high degree of cognitive discounting. Third, we find that the degree of cognitive discounting significantly impacts the effect of the cost channel on optimal monetary policy.

Suggested Citation

  • Ida, Daisuke & Kaminoyama, Kenichi, 2024. "Effect of a cost channel on monetary policy transmission in a behavioral New Keynesian model," MPRA Paper 120424, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:120424
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    File URL: https://mpra.ub.uni-muenchen.de/120424/1/MPRA_paper_120424.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Cognitive discounting; New Keynesian model; Cost channel; Monetary policy rules; Price puzzle;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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