Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/264709 
Year of Publication: 
2006
Series/Report no.: 
Working Paper No. 117
Publisher: 
Oesterreichische Nationalbank (OeNB), Vienna
Abstract: 
This paper investigates the business cycle implications of limited pass-through to retail interest rates based on a calibrated sticky price model. Although limited interest rate pass-through can in principle reduce output and inflation volatility at the same time, large reductions in output volatility are likely to be accompanied by a more volatile inflation rate. Limited pass-through gives rise to two counteracting effects: It partially insulates the economy from adverse liquidity shocks and thereby leads to lower output volatility. However, it also reduces the stabilizing effect of monetary policy which implies higher inflation volatility.
Subjects: 
Financial Systems
Interest Rate Pass-Through
Business Cycle
JEL: 
E32
E44
E52
Document Type: 
Working Paper

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