The monetary transmission mechanism in a New-Keynesian model with contemporary features is put to scrutiny. In contrast to Rupert and Šustek (2019), we find that the real interest rate channel is structural when the model contains empirically realistic frictions on the ow of investment. A monetary contraction (expansion) is always followed by an increase (decrease) in the real interest rate. The monetary transmission mechanism indeed operates through the real interest rate channel in this class of models.

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Department of Economics
Carleton Economics Working Papers (CEWP)
Department of Economics

Brault, Joshua, & Khan, H.U. (2019). The Real Interest Rate Channel is Structural in Contemporary New-Keynesian Models (No. CEP 19-05). Carleton Economics Working Papers (CEWP). Department of Economics.