Monetary transmission mechanism : heterogeneous information, inventories, and credit-market imperfections
This thesis presents a theoretical investigation into the monetary transmission mechanism. In particular, I focus on heterogeneous information, inventories, and credit-market imperfections as factors that help to propagate monetary disturbances to the economy in a way that can explain plausibly the observed effects of monetary policy. First, I consider heterogeneous information among price-setters who can only observe the state of the economy through noisy private signals. I construct a model which incorporates the imperfect common knowledge into the Taylor-Calvo staggered price-setting model. The average price chosen in each period depends on the higher-order expectations about not only the current state of the economy but also the future states during the periods the prices will be fixed. The response of inflation to a monetary disturbance is delayed following a sluggish initial adjustment of prices and the response of output is amplified by the imperfection in common knowledge. These results are robust when a noisy public signal in addition to private signals is introduced. Secondly, I consider inventories by developing simple dynamic general equilibrium models which assume pre-determined prices and incorporate a production-smoothing motive and a sales-facilitating motive for holding inventories. Inventories serve as a source of real rigidities, that is, amplify the persistence of the real effects of monetary policy. Inventories respond pro-cyclically and prices are adjusted gradually to a nominal disturbance only if the sales-facilitating motive is relatively strong enough; otherwise inventories respond countercyclically and prices are adjusted excessively. I also consider the case where production as well as prices is pre-determined. Lastly, I consider credit-market imperfections by examining a model which incorporates asymmetric information between lenders and borrowers into a standard dynamic New Keynesian model. I calibrate the model using Japanese data and find that the large volatility of Japan's corporate investment can be explained by taking account of the credit-market imperfections. Based on this model, I simulate alternative monetary policy rules and evaluate their performances.