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Loan production and monetary policy

Listed author(s):
  • LG Deidda

    ()

  • J.E. Galdon-Sanchez
  • M. Casares

We examine optimal monetary policy in a New Keynesian model with unemployment and financial frictions where banks produce loans using equity as collateral. Firms and households demand loans to finance externally a fraction of their flows of expenditures. Our findings show amplifying business-cycle effects of a more rigid loan production technology. In the monetary policy analysis, the optimal rule clearly outperforms Taylor (1993) rule. The optimized interest-rate response to the external finance premium turns significantly negative when either banking rigidities are high or when financial shocks are the only source of business cycle fluctuations.

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File URL: http://crenos.unica.it/crenos/node/6768
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File URL: http://crenos.unica.it/crenos/sites/default/files/WP16-12.pdf
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Paper provided by Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia in its series Working Paper CRENoS with number 201612.

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Date of creation: 2016
Handle: RePEc:cns:cnscwp:201612
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  27. repec:spo:wpecon:info:hdl:2441/5l6uh8ogmqildh09h481l2tb5 is not listed on IDEAS
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