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Do bank-based financial systems reduce macroeconomic volatility by smoothing interest rates?

  • Scharler, Johann

This paper investigates the business cycle implications of limited pass-through from market interest rates to retail interest rates based on a calibrated sticky price model. The main result of the paper is that limited interest rate pass-through reduces output volatility to a modest extent as long as the pass-through is complete at least in the long-run. Larger volatility reductions are obtained if the long-run pass-through is incomplete. However, in this case output volatility is reduced at the cost of higher inflation volatility.

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File URL: http://www.sciencedirect.com/science/article/pii/S0164-0704(07)00119-X
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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 30 (2008)
Issue (Month): 3 (September)
Pages: 1207-1221

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Handle: RePEc:eee:jmacro:v:30:y:2008:i:3:p:1207-1221
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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