Financial frictions, durable goods and monetary policy / by Ugochi T. Emenogu and Leo Michelis.: FB3-5/2019-31E-PDF
"This paper examines the effect of financial frictions on the consumption of durables and non-durables in a two-sector dynamic stochastic general equilibrium (DSGE) model with sticky prices and heterogeneous agents. The financial frictions are a combination of loan-to-value (LTV) and payment-to-income (PTI) constraints faced by borrowers. In this setting, a monetary contraction drastically reduces the maximum amount consumers can borrow to purchase durable goods. As a result, the model predicts that the consumption of durables falls, along with non-durables, even when durable prices are fully flexible. Also, output falls and the nominal interest rate increases following monetary tightening. Thus, our model's predictions better match the data than models in existing literature"--Abstract.
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| Department/Agency | Bank of Canada. |
|---|---|
| Title | Financial frictions, durable goods and monetary policy / by Ugochi T. Emenogu and Leo Michelis. |
| Series title | Bank of Canada staff working paper,1701-9397 ; 2019-31 |
| Publication type | Series - View Master Record |
| Language | [English] |
| Format | Electronic |
| Electronic document | |
| Note(s) | "August 2019." Includes bibliographical references (pages 23-24). |
| Publishing information | Ottawa : Bank of Canada, 2019. ©2019. |
| Author / Contributor | Emenogu, Ugochi T., author. Michelis, Leo, author. |
| Description | 1 online resource (ii, 24 pages) : figures. |
| Catalogue number |
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| Subject terms | Monetary policy |