Optimal monetary policy under staggered loan contracts

In Chapter 1, we theoretically investigate optimal monetary policy in a low inflation environment in which the non-negativity constraint on nominal interest rates binds. First, we compare the effectiveness of discretionary policy to policy with commitment. Our results reveal that the commitment policy is quite valid in a deflationary economy because of the central bank's promise to maintain zero interest rates for a while. Second, by showing the optimal interest rate rules, we imply how monetary policy should be designed in a low inflation era.;In Chapter 2, we first investigate a new source of economic stickiness, staggered nominal loan interest rate contracts between a private bank and a firm under the monopolistic competition. We introduce this staggered loan contract mechanism with micro-foundation based on agent's optimized behaviors into a standard New Keynesian model in a tractable way. Simulation results show that staggered loan contracts play an important role in determining both the amplitude and the persistence of economic fluctuations. Then, we second analyze optimal monetary policy in this environment with staggered loan contracts. To this end, we derive an approximated microfounded-welfare function in the model. Unlike the loss functions derived in other New Keynesian models, this model's welfare function includes a term that measures the first order difference in loan interest rates, which requires reduction of the magnitude of policy interest rate changes in the welfare itself. We derive the optimal monetary policy rule when the central bank can commit to its policy in a timeless perspective. One implication of the optimal policy rule is that the central bank has the incentive to smooth the policy interest rate. This empirically realistic conclusion can be seen in our simulation results.;In Chapter 3, we introduce staggered international loan contracts into a standard two-country new Keynesian model in a tractable way. We demonstrate that this international staggered loan contract induces more persistent and more volatile global economic dynamics. In particular, our simulation results show that a model with international staggered loan contracts can provide a good explanation for the persistence seen in real exchange rate movements.