IDEAS home Printed from https://ideas.repec.org/p/ime/imedps/25-e-16.html
   My bibliography  Save this paper

Sticky Discount Rates

Author

Listed:
  • Masao Fukui

    (Boston University (E-mail: mfukui@bu.edu))

  • Niels Joachim Gormsen

    (University of Chicago, Booth School of Business (E-mail: niels.gormsen@chicagobooth.edu))

  • Kilian Huber

    (University of Chicago, Booth School of Business (E-mail: kilianhuber@uchicago.edu))

Abstract

We show that firms' nominal required returns (i.e., discount rates) are sticky with respect to expected inflation. Sticky discount rates generate distinct theoretical predictions that are broadly consistent with stylized empirical patterns: increases in expected inflation directly raise real investment; demand shocks generate investment-consumption comovement; and the sensitivity of investment to interest rates is low. Sticky discount rates imply monetary non- neutrality, even when all other prices are flexible, because of a direct link from expected inflation to investment. In the New Keynesian optimal monetary policy problem, the central bank steers long-run inflation expectations, even in response to temporary shocks.

Suggested Citation

  • Masao Fukui & Niels Joachim Gormsen & Kilian Huber, 2025. "Sticky Discount Rates," IMES Discussion Paper Series 25-E-16, Institute for Monetary and Economic Studies, Bank of Japan.
    • Handle: RePEc:ime:imedps:25-e-16
    as

    Download full text from publisher

    File URL: https://www.imes.boj.or.jp/research/papers/english/25-E-16.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ime:imedps:25-e-16. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kinken (email available below). General contact details of provider: https://edirc.repec.org/data/imegvjp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.