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Effect of a cost channel on monetary policy transmission in a behavioral new Keynesian model

Published online by Cambridge University Press:  19 May 2025

Daisuke Ida  and
Kenichi Kaminoyama
Daisuke Ida*
Affiliation:
Faculty of Economics, Momoyama Gakuin University, Izumi, Osaka, Japan Graduate School of Economics, Kobe University, Kobe, Hyogo, Japan
Kenichi Kaminoyama
Affiliation:
Faculty of Economics, Momoyama Gakuin University, Izumi, Osaka, Japan
*
Corresponding author: Daisuke Ida; Email: ida-dai@andrew.ac.jp
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Abstract

This paper explores the role of the cost channel in a behavioral New Keynesian model where households and firms have different degrees of cognitive discounting. Our findings are summarized as follows. First, we demonstrate how the degree of cognitive discounting significantly affects the determinacy condition through the cost channel model. Second, a high degree of cognitive discounting attenuates the response of inflation to a monetary tightening shock, and the cost channel amplifies this effect. Third, the degree of cognitive discounting significantly impacts the effect of the cost channel on the design of optimal monetary policy.

Keywords

Cognitive discountingcost channelNew Keynesian modeldeterminacyoptimal monetary policyE52E58
Type
Articles
Information
Macroeconomic Dynamics , Volume 29 , 2025 , e104
Copyright
© The Author(s), 2025. Published by Cambridge University Press

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