Working paper/research report

Publication year: 2006

URL: https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&doi=7b90e74d51c6fd227eea8ab25689c4bc8d0d3e85

Abstract: 

This paper proposes a novel approach to empirically assess the impact of the cost channel of monetary transmission on the dynamics of inflation within a New Keynesian Phillips curve framework. According to the cost channel, higher interest rates translate into higher marginal costs of production and, eventually, into higher inflation. We exploit the presentvalue implications of the model to derive a series of fundamental inflation that is contrasted with actual inflation. We show that the cost channel adds significantly to the explanation of inflation dynamics in forward-looking sticky-price models for the US, the UK, and the Euro area. Moreover, the cost channel can explain inflation episodes that cannot be accounted for by the standard New Keynesian model.

Harvard Citation style: Tillmann, P. (2006) Does the cost channel of monetary transmission explain inflation dynamics?. https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&doi=7b90e74d51c6fd227eea8ab25689c4bc8d0d3e85

APA Citation style: Tillmann, P. (2006). Does the cost channel of monetary transmission explain inflation dynamics?. https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&doi=7b90e74d51c6fd227eea8ab25689c4bc8d0d3e85