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Nominal Rigidities in Debt and Product Markets

Carlos Garriga, Finn E. Kydland, Roman Šustek

NBER Working Paper No. 22613
Issued in September 2016
NBER Program(s):Monetary Economics

Standard models used for monetary policy analysis rely on sticky prices. Recently, the literature started to explore also nominal debt contracts. Focusing on mortgages, this paper compares the two channels of transmission within a common framework. The sticky price channel is dominant when shocks to the policy interest rate are temporary, the mortgage channel is important when the shocks are persistent. The first channel has significant aggregate effects but small redistributive effects. The opposite holds for the second channel. Using yield curve data decomposed into temporary and persistent components, the redistributive and aggregate consequences are found to be quantitatively comparable.

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Document Object Identifier (DOI): 10.3386/w22613

Published: Carlos Garriga & Finn E. Kydland & Roman Sustek, 2016. "Nominal rigidities in debt and product markets," Federal Reserve Bank of St. Louis, Working Papers, vol 2016(17).

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