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The effects of monetary policy shocks in credit and labor markets with search and matching frictions

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  • Giuseppe Ciccarone
  • Francesco Giuli
  • Danilo Liberati

Abstract

By introducing search and matching frictions in both the labor and the credit markets into acash in advance New Keynesian DSGE model, we provide a novel explanation of the incompletepass-through from policy rates to loan rates. We show that this phenomenon is ineradicable ifbanks possess some power in the bargaining over the loan rate of interest, if the cost of postingjob vacancies is positive and if firms and bank sustain costs when searching for lines of creditand when posting credit vacancies, respectively. We also show that the presence of credit marketfrictions moderates the reactions of output and wages to a monetary shock, and that thetransmission of monetary policy shocks to output and inflation is more relevant than suggestedby the recent literature.

Suggested Citation

  • Giuseppe Ciccarone & Francesco Giuli & Danilo Liberati, 2012. "The effects of monetary policy shocks in credit and labor markets with search and matching frictions," Working Papers in Public Economics 151, Department of Economics and Law, Sapienza University of Roma.
    • Handle: RePEc:sap:wpaper:wp151
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    Cited by:

    1. Maria Grazia Miele, 2013. "The effects of capital requirements on real economy: a cointegrated VAR approach for US commercial banks," Working Papers in Public Economics 163, University of Rome La Sapienza, Department of Economics and Law.

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    More about this item

    Keywords

    interest rate pass-through; search and matching; credit market frictions.;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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