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The time-varying cost channel of monetary transmission

  • Tillmann, Peter

This paper studies the time-varying role of the cost channel of monetary transmission, i.e. the supply-side effect of monetary policy based on firms' costs of holding working capital. For that purpose, we provide rolling-window estimates of an augmented New Keynesian Phillips curve and show that the cost channel exhibits important time-varying dynamics. We find, as a general pattern, that the cost channel was most important in the pre-Volcker period and less important in the Volcker-Greenspan era. Recently, however, the cost channel regained importance. Since the cost channel is based on the transmission of policy impulses through bank lending, it is likely that the time-varying cost channel reflects the cyclical nature of financial frictions.

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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 28 (2009)
Issue (Month): 6 (October)
Pages: 941-953

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Handle: RePEc:eee:jimfin:v:28:y:2009:i:6:p:941-953
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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