Casares Polo, MiguelDeidda, LucaGaldón Sánchez, José Enrique2020-01-072020-01-0720191365-100510.1017/S1365100516001139https://academica-e.unavarra.es/handle/2454/35997The authors examine optimal monetary policy in a New Keynesian model with unemployment and financial frictions where banks produce loans using equity as collateral. Firms and households demand loans to finance externally a fraction of their flows of expenditures. Our findings show amplifying business-cycle effects of a more rigid loan production technology. In the monetary policy analysis, the optimal rule clearly outperforms a Taylor-type rule. The optimized interest-rate response to the external finance premium turns significantly negative when either banking rigidities are high or when financial shocks are the only source of business cycle fluctuations.41 p.application/pdfeng© Cambridge University Press 2017External financeOptimal monetary policyBusiness cyclesinfo:eu-repo/semantics/articleinfo:eu-repo/semantics/openAccess