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The Cost Channel of Monetary Policy Transmission

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  • Westermeier Andreas

    (Centrum für angewandte Wirtschaftsforschung)

Abstract

In this paper, we develop the new Keynesian Phillips curve augmented by the cost channel of monetary transmission and analyze the central bank's best monetary policy if the central bank is obliged to minimize inflation. It can be shown that a small change of the cost channel's coefficient might lead from a major increase in interest rates to a major decrease in interest rates and vice versa. Even though the optimal interest rate might change dramatically, the inflation response is of only marginal effect.

Suggested Citation

  • Westermeier Andreas, 2010. "The Cost Channel of Monetary Policy Transmission," South East European Journal of Economics and Business, Sciendo, vol. 5(1), pages 19-23, April.
    • Handle: RePEc:vrs:seejeb:v:5:y:2010:i:1:p:19-23:n:2
    DOI: 10.2478/v10033-010-0002-7
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    References listed on IDEAS

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    Cited by:

    1. Li, Huan & Ni, Jinlan & Xu, Yueli & Zhan, Minghua, 2021. "Monetary policy and its transmission channels: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).

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