The Financial Accelerator, Wages, and Optimal Monetary Policy

This paper studies the effects of labor market outcomes on firms’ loan demand and credit intermediation. In a first step, I investigate how wages in production sector affect bank net worth process financial intermediation partial equilibrium. Second, role identified channels are studied general equilibrium using new- Keynesian DSGE-model with frictions an endogenous accelerator mechanism. Third, perfect imperfect markets, setting interactions between factor costs credit, transmission mechanism monetary policy. The analysis reveals that reduce elasticity capital to change wages. finding is relevant for determination optimal policy, both shocks supply inflation stabilization imposes high welfare costs. At same time, stabilizing nominal becomes beneficial by reducing volatility spread output gap.