• Corpus ID: 55903651

Incomplete Interest Rate Pass-Through and Optimal Monetary Policy

@inproceedings{Kobayashi2012IncompleteIR,
  title={Incomplete Interest Rate Pass-Through and Optimal Monetary Policy},
  author={Teruyoshi Kobayashi},
  year={2012}
}
Many recent empirical studies have reported that the passthrough from money-market rates to retail lending rates is far from complete in the euro area. This paper formally shows that when only a fraction of all the loan rates is adjusted in response to a shift in the policy rate, fluctuations in the average loan rate lead to welfare costs. Accordingly, the central bank is required to stabilize the rate of change in the average loan rate in addition to inflation and output. It turns out that the… 

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