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Monetary policy transmission modeling and policy responses

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  • Xu, Xin
  • Xu, Xiaoguang

Abstract

Monetary policy transmission depends significantly on agents’ attitudes about the state of the economy, especially during recessions. We develop an endogenous-switching New Keynesian model that allows agents to have heterogeneous responsiveness depending on their wealth and beliefs. After considering the additional transmission to the monetary policy, we find that the economy experiences lower deviations than those in the baseline model. And moreover, the transmission of exogenous shocks in the behavioral model varies across economies, especially depending on some macroeconomic variables and agents’ behaviors.

Suggested Citation

  • Xu, Xin & Xu, Xiaoguang, 2023. "Monetary policy transmission modeling and policy responses," The North American Journal of Economics and Finance, Elsevier, vol. 64(C).
    • Handle: RePEc:eee:ecofin:v:64:y:2023:i:c:s1062940822001760
    DOI: 10.1016/j.najef.2022.101841
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    1. Salha Ben Salem & Moez Labidi, 2024. "Financial friction and optimal monetary policy: analysis of DSGE model with financial friction and price sticky," SN Business & Economics, Springer, vol. 4(7), pages 1-24, July.

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    More about this item

    Keywords

    Monetary policy transmission; Endogenous-switching New Keynesian model;

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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