Research proposes ‘Monk’ model of long-term monetary transmission
Equilibrium in standard models only affected by short rates, say Garriga, Kydland and Šustek
A team of researchers has proposed a new means of modelling monetary policy transmission in which long-term rates have an impact on equilibrium outcomes.
Carlos Garriga, Finn Kydland and Roman Šustek propose including mortgages in a New Keynesian framework, creating what they call a “Monk” model. The authors note that while long-term rates are an important consideration for policy-makers in practice, they “do not affect equilibrium outcomes” in standard New Keynesian models.
They propose a
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