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Monetary Shocks and Central Bank Liquidity with Credit Market Imperfections

Listed author(s):
  • Pierre-Richard Agenor
  • Koray Alper

This paper analyzes the transmission process of monetary policy in a closed-economy New Keynesian model with monopolistic banking, credit market imperfections, and a cost channel. Lending rates incorporate a risk premium, which depends on firms’ net worth and cyclical output. The supply of bank loans is perfectly elastic at the prevailing bank rate and so is the provision of central bank liquidity at the official policy rate. The model is calibrated for a middle-income country. Numerical simulations show that credit market imperfections and sluggish adjustment of bank deposit rates (rather than lendingrates) may impart a substantial degree of persistence in the response of output and inflation to monetary shocks.

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File URL: http://www.tcmb.gov.tr/wps/wcm/connect/89bbaffa-2f2e-445c-8017-f6f63e8cfa64/WP0906ENG.pdf?MOD=AJPERES&CACHEID=89bbaffa-2f2e-445c-8017-f6f63e8cfa64
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Paper provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its series Working Papers with number 0906.

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Date of creation: 2009
Handle: RePEc:tcb:wpaper:0906
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