We consider a simple extension of the basic new-Keynesian setup in which we relax the assumption of frictionless financial markets. In our economy, asymmetric information and default risk lead banks to optimally charge a lending rate above the risk-free rate. Our contribution is threefold....

How should monetary policy respond to changes in financial conditions? In this paper we consider a simple model where firms are subject to idiosyncratic shocks which may force them to default on their debt. Firms’ assets and liabilities are denominated in nominal terms and predetermined when...

An important stylized fact to emerge from the VAR estimates is that exogenous monetary policy shocks (also labelled unsystematic monetary policy) have a delayed, persistent, hump shaped effect on in.ation. I argue that this empirical pattern is fragile. In particular it disappears when one...