Journal article

Publication year: 2009

Pages: 486-504

Journal: Economica

Volume number: 76

Issue number: 303

DOI Link: https://doi.org/10.1111/j.1468-0335.2008.00697.x

Publisher: Wiley

Abstract: 

Recent research argues that model uncertainty leads the central bank to adjust interest rates stronger to exogenous disturbances than under certainty. This paper investigates whether the introduction of a cost channel of monetary transmission, whose presence is empirically supported, changes the impact of model uncertainty on interest rate setting. The model is simple enough to facilitate an analytical solution. I find that the presence of the cost channel dampens the effect of model uncertainty on interest rate setting and can offset the activist policy stance. A richer model that allows for persistent supply and demand shocks corroborates these findings.

Harvard Citation style: Tillmann, P. (2009) Robust monetary policy with the cost channel, Economica, 76(303), pp. 486-504. https://doi.org/10.1111/j.1468-0335.2008.00697.x

APA Citation style: Tillmann, P. (2009). Robust monetary policy with the cost channel. Economica. 76(303), 486-504. https://doi.org/10.1111/j.1468-0335.2008.00697.x