Credit spread and monetary policy
Financial System and Bank Examination Department, Bank of Japan
New Keynesian model extended with heterogeneous loan interest rate contracts, where different types of private banks provide differentiated loan rate contracts to firms requiring external finance, incorporating a cost channel mechanism
firms need external finance for production, half financed by loan type R and half by loan type S
Theoretical derivation of optimal monetary policy rule with heterogeneous loan contracts; no numerical optimal inflation rate reported
Paper derives optimal policy rule analytically but does not report a numerical optimal inflation rate