Staggered loan contract in a new keynesian framework

Alp, Harun
This thesis aims to understand the role of interest rate setting behavior of the banks for the transmission of technology, monetary policy and loan rate shocks into the real economy. To this end, we introduce a monopolistically competitive banking sector into a New Keynesian model. Here, each bank can change its loan rate only infrequently in the fashion of Calvo type staggered contract. This setting implies that the adjustment of the aggregate loan rate is sticky, which is consistent with the empirical evidence. The results show that having sticky adjustment in the loan market changes the dynamics of the model significantly. Following each shock, the sluggish adjustment of the loan rate affects the amount of loan used by the borrowers considerably. This is the main reason behind the differentials across the impulse responses of the model with sticky loan rate and flexible loan rate.


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Citation Formats
H. Alp, “Staggered loan contract in a new keynesian framework,” M.S. - Master of Science, Middle East Technical University, 2009.