The Effects of Monetary Policy Shocks in Credit and Labor Markets with Search and Matching Frictions

33 Pages Posted: 17 Feb 2011 Last revised: 14 Feb 2012

See all articles by Francesco Giuli

Francesco Giuli

University of Rome III - Department of Economics

Giuseppe Ciccarone

University of Rome I - Department of Public Economics

Danilo Liberati

Bank of Italy

Date Written: March 7, 2011

Abstract

By introducing search and matching frictions in both the labor and the credit markets into a cash in advance New Keynesian DSGE model, we provide a novel explanation of the incomplete pass-through from policy rates to loan rates. We show that this phenomenon is ineradicable if banks possess some power in the bargaining over the loan rate of interest, if the cost of posting job vacancies is positive and if firms and bank sustain costs when searching for lines of credit and when posting credit vacancies, respectively. The presence of credit market frictions moderates the reactions of output and wages to a monetary shock.

Keywords: Interest rate pass-through, search and matching, credit market frictions

JEL Classification: E43, E13, E24, E44

Suggested Citation

Giuli, Francesco and Ciccarone, Giuseppe and Liberati, Danilo, The Effects of Monetary Policy Shocks in Credit and Labor Markets with Search and Matching Frictions (March 7, 2011). Available at SSRN: https://ssrn.com/abstract=1762580 or http://dx.doi.org/10.2139/ssrn.1762580

Francesco Giuli

University of Rome III - Department of Economics ( email )

via Ostiense, 139
Rome, 00154
Italy

Giuseppe Ciccarone (Contact Author)

University of Rome I - Department of Public Economics ( email )

Via del Castro Laurenziano 9
Rome, 00161
Italy

HOME PAGE: http://dep.eco.uniroma1.it/~ciccaron/

Danilo Liberati

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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