The Financial Accelerator and Monetary Policy Rules

23 Pages Posted: 7 Dec 2011

See all articles by Güneş Kamber

Güneş Kamber

Bank for International Settlements (BIS) - Monetary and Economic Department

Christoph Thoenissen

Victoria University of Wellington - Te Herenga Waka

Date Written: December 1, 2011

Abstract

The ability of financial frictions to amplify the output response of monetary policy, as in the financial accelerator model of Bernanke et al. (1999), is analyzed for a wider class of policy rules where the policy interest rate responds to both inflation and the output gap. When policy makers respond to the output gap as well as inflation, the standard financial accelerator model reacts less to an interest rate shock than does a comparable model without an operational financial accelerator mechanism. In recessions, when firm-specific volatility rises, financial acceleration due to financial frictions is further reduced, even under pure inflation targeting.

Suggested Citation

Kamber, Gunes and Thoenissen, Christoph, The Financial Accelerator and Monetary Policy Rules (December 1, 2011). Available at SSRN: https://ssrn.com/abstract=1968718 or http://dx.doi.org/10.2139/ssrn.1968718

Gunes Kamber

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Christoph Thoenissen (Contact Author)

Victoria University of Wellington - Te Herenga Waka ( email )

P.O. Box 600
Wellington, 6140
New Zealand