Working Paper: CEPR ID: DP566
Authors: Vittorio Grilli; Nouriel Roubini
Abstract: In this paper we investigate the role of credit institutions in transmitting monetary shocks to the domestic economy and to the output of the rest of the world. In modelling the monetary and financial sector of the economy we distinguish between monetary injections that take place via lump-sum transfers to individuals and those that involve increased credit to the commercial banking sector through discount window operations. We distinguish between the discount rate of the central bank and the lending and borrowing interest rates of commercial banks, which we assume are also subject to reserve requirements. We find that domestic output increases after a steady state increase in monetary injections via increases in domestic credit, but an increase in the steady state level of monetary transfers reduces the level of output.
Keywords: monetary policy; financial intermediation; international transmission
JEL Codes: 314; 431
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in domestic credit (E51) | increase in domestic output (E23) |
| increase in monetary transfers (F24) | decrease in output (E23) |