Startseite Wirtschaftswissenschaften Agency costs and the monetary transmission mechanism
Artikel
Lizenziert
Nicht lizenziert Erfordert eine Authentifizierung

Agency costs and the monetary transmission mechanism

  • Michael Reiter , Tommy Sveen EMAIL logo und Lutz Weinke
Veröffentlicht/Copyright: 9. Oktober 2018
The B.E. Journal of Macroeconomics
Aus der Zeitschrift The B.E. Journal of Macroeconomics Band 20 Heft 1

Abstract

Once New Keynesian (NK) theory is combined with a standard model of lumpy investment, the resulting framework loses its ability to generate a realistic monetary transmission mechanism. This is the puzzle uncovered in Reiter, Sveen, and Weinke [Reiter, M., T. Sveen, and L. Weinke. 2013. “Lumpy Investment and the Monetary Transmission Mechanism.” Journal of Monetary Economics 60: 821–834.]. The simple economic reason behind it is the unrealistically large interest rate elasticity of investment, as implied by the standard theory of lumpy investment. In order to address this puzzle we develop a NK model featuring fully flexible investment combined with a financial friction. This model is used to isolate the quantitative importance of the financial friction for the monetary transmission mechanism.

Keywords: financial frictions; sticky prices
JEL Classification: E22; E31; E32

Acknowledgement

Thanks to seminar participants at Freie Universität Berlin as well as to managing editor Tiago Cavalcanti and two anonymous referees. Janina Erichsen, Alina Imping and Rahel Mandaroux provided excellent research assistance. This research was funded by the Deutsche Forschungsgemeinschaft (DFG, German Research Foundation) – 402884221, and the Fonds zur Förderung der wissenschaftlichen Forschung (FWF Austrian Science Fund) – I3840-G27. Their financial support is gratefully acknowledged. The usual disclaimer applies.

References

Bernanke, B., M. Gertler, and S. Gilchrist. 1999. “The Financial Accelerator in a Quantitative Business Cycle Framework.” In Handbook of Macroeconomics, edited by Taylor, J. and M. Woodford, Vol. 1. 1341–1393. Amsterdam, Netherlands: Elsevier.10.1016/S1574-0048(99)10034-XSuche in Google Scholar

Caballero, R. J., and E. R. M. A. Engel. 2007. “Price Stickiness in Ss Models: New Interpretations of Old Results.” Journal of Monetary Economics 54S: 100–121.10.3386/w12945Suche in Google Scholar

Calvo, G. 1983. “Staggered Prices in a Utility Maximizing Framework.” Journal of Monetary Economics 12: 383–398.10.1016/0304-3932(83)90060-0Suche in Google Scholar

Carlstrom, C. T., and T. S. Fuerst. 1997. “Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis.” American Economic Review 87: 893–910.10.26509/frbc-wp-199602Suche in Google Scholar

Carlstrom, C. T., and T. S. Fuerst. 2001. “Monetary Shocks, Agency Costs, and Business Cycles.” Carnegie-Rochester Conference Series on Public Policy 54: 1–27.10.1016/S0167-2231(01)00037-9Suche in Google Scholar

Christiano, L. J., M. Eichenbaum, and C. L. Evans. 2005. “Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy.” Journal of Political Economy 113: 1–45.10.1086/426038Suche in Google Scholar

Covas, F., and W. J. Den Haan. 2012. “The Role of Debt and Equity Finance over the Business Cycle.” The Economic Journal 122: 1262–1286.10.1111/j.1468-0297.2012.02528.xSuche in Google Scholar

Cúrdia, V., and M. Woodford. 2011. “The Central-Bank Balance Sheet as an Instrument of Monetary Policy.” Journal of Monetary Economics 58: 54–79.10.1016/j.jmoneco.2010.09.011Suche in Google Scholar

Doms, M., and T. Dunne. 1998. “Capital Adjustment Patterns in Manufacturing Plants.” Review of Economic Dynamics 1: 409–429.10.1006/redy.1998.0011Suche in Google Scholar

Dotsey, M., R. G. King, and A. L. Wolman. 1999. “State-Dependent Pricing and the General Equilibrium Dynamics of Money and Output.” The Quarterly Journal of Economics 114: 655–690.10.1162/003355399556106Suche in Google Scholar

Galí, J. 2015. Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework, 2nd Edition. Oxford and Princeton: Princeton University Press.Suche in Google Scholar

Gertler, M., and P. Karadi. 2011. “A Model of Unconventional Monetary Policy.” Journal of Monetary Economics 58: 17–34.10.1016/j.jmoneco.2010.10.004Suche in Google Scholar

Khan, A., and J. K. Thomas. 2008. “Idiosyncratic Shocks and the Role of Nonconvexities in Plant and Aggregate Investment Dynamics.” Econometrica 76: 395–436.10.1111/j.1468-0262.2008.00837.xSuche in Google Scholar

Reiter, M. 2009. “Solving Heterogeneous-Agent Models by Projection and Perturbation.” Journal of Economic Dynamics and Control 33: 649–665.10.1016/j.jedc.2008.08.010Suche in Google Scholar

Reiter, M. 2010. “Approximate Aggregation in Heterogeneous-Agent Models.” IAS Economics Working Paper 258.Suche in Google Scholar

Reiter, M., T. Sveen, and L. Weinke. 2013. “Lumpy Investment and the Monetary Transmission Mechanism.” Journal of Monetary Economics 60: 821–834.10.1016/j.jmoneco.2013.08.003Suche in Google Scholar

Sveen, T., and L. Weinke. 2007. “Lumpy Investment, Sticky Prices, and the Monetary Transmission Mechanism.” Journal of Monetary Economics 54S: 23–36.10.1016/j.jmoneco.2007.06.016Suche in Google Scholar

Sveen, T., and L. Weinke. 2017. “Optimal Monetary Policy with Nominal Rigidities and Lumpy Investment.” International Journal of Central Banking 13: 35–62.Suche in Google Scholar

Thomas, J. K. 2002. “Is Lumpy Investment Relevant for the Business Cycle?” Journal of Political Economy 110: 508–534.10.1086/339746Suche in Google Scholar

Woodford, M. 2003. Interest and Prices: Foundations of a Theory of Monetary Policy. Oxford and Princeton: Princeton University Press.10.1515/9781400830169Suche in Google Scholar

Woodford, M. 2005. “Firm-Specific Capital and the New-Keynesian Phillips Curve.” International Journal of Central Banking 1: 1–46.10.3386/w11149Suche in Google Scholar

Published Online: 2018-10-09

©2020 Walter de Gruyter GmbH, Berlin/Boston

Artikel in diesem Heft

  1. Contributions
  2. An empirical study on the New Keynesian wage Phillips curve: Japan and the US
  3. Risk averse banks and excess reserve fluctuations
  4. Advances
  5. Signaling in monetary policy near the zero lower bound
  6. Contributions
  7. Robust learning in the foreign exchange market
  8. Foreign official holdings of US treasuries, stock effect and the economy: a DSGE approach
  9. Discretion rather than rules? Outdated optimal commitment plans versus discretionary policymaking
  10. Agency costs and the monetary transmission mechanism
  11. Advances
  12. Optimal monetary policy in a model of vertical production and trade with reference currency
  13. The financial accelerator and marketable debt: the prolongation channel
  14. The welfare cost of inflation with banking time
  15. Prospect Theory and sentiment-driven fluctuations
  16. Contributions
  17. Household borrowing constraints and monetary policy in emerging economies
  18. The macroeconomic impact of shocks to bank capital buffers in the Euro Area
  19. The effects of monetary policy on input inventories
  20. The welfare effects of infrastructure investment in a heterogeneous agents economy
  21. Advances
  22. Collateral and development
  23. Contributions
  24. Financial deepening in a two-sector endogenous growth model with productivity heterogeneity
  25. Is unemployment on steroids in advanced economies?
  26. Monitoring and coordination for essentiality of money
  27. Dynamics of female labor force participation and welfare with multiple social reference groups
  28. Advances
  29. Technology and the two margins of labor adjustment: a New Keynesian perspective
  30. Contributions
  31. Changing demand for general skills, technological uncertainty, and economic growth
  32. Job competition, human capital, and the lock-in effect: can unemployment insurance efficiently allocate human capital
  33. Fiscal policy and the output costs of sovereign default
  34. Animal spirits in an open economy: an interaction-based approach to the business cycle
  35. Ramsey income taxation in a small open economy with trade in capital goods
https://doi.org/10.1515/bejm-2018-0010
Schlagwörter für diesen Artikel
financial frictions; sticky prices

Artikel in diesem Heft

  1. Contributions
  2. An empirical study on the New Keynesian wage Phillips curve: Japan and the US
  3. Risk averse banks and excess reserve fluctuations
  4. Advances
  5. Signaling in monetary policy near the zero lower bound
  6. Contributions
  7. Robust learning in the foreign exchange market
  8. Foreign official holdings of US treasuries, stock effect and the economy: a DSGE approach
  9. Discretion rather than rules? Outdated optimal commitment plans versus discretionary policymaking
  10. Agency costs and the monetary transmission mechanism
  11. Advances
  12. Optimal monetary policy in a model of vertical production and trade with reference currency
  13. The financial accelerator and marketable debt: the prolongation channel
  14. The welfare cost of inflation with banking time
  15. Prospect Theory and sentiment-driven fluctuations
  16. Contributions
  17. Household borrowing constraints and monetary policy in emerging economies
  18. The macroeconomic impact of shocks to bank capital buffers in the Euro Area
  19. The effects of monetary policy on input inventories
  20. The welfare effects of infrastructure investment in a heterogeneous agents economy
  21. Advances
  22. Collateral and development
  23. Contributions
  24. Financial deepening in a two-sector endogenous growth model with productivity heterogeneity
  25. Is unemployment on steroids in advanced economies?
  26. Monitoring and coordination for essentiality of money
  27. Dynamics of female labor force participation and welfare with multiple social reference groups
  28. Advances
  29. Technology and the two margins of labor adjustment: a New Keynesian perspective
  30. Contributions
  31. Changing demand for general skills, technological uncertainty, and economic growth
  32. Job competition, human capital, and the lock-in effect: can unemployment insurance efficiently allocate human capital
  33. Fiscal policy and the output costs of sovereign default
  34. Animal spirits in an open economy: an interaction-based approach to the business cycle
  35. Ramsey income taxation in a small open economy with trade in capital goods
Jetzt anmelden und 20% sparen
Institutioneller Zugang
Wie funktioniert Authentifizierung?
Haben Sie eine Idee, wie wir unsere Website verbessern können?
Bitte schreiben Sie uns.
© 2026 De Gruyter Brill
Heruntergeladen am 1.1.2026 von https://www.degruyterbrill.com/document/doi/10.1515/bejm-2018-0010/html
Button zum nach oben scrollen