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Discussion Paper Series 1: Economic Studies, Bundesbank >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/10419/27749
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| Title: | | More or less aggressive? Robust monetary policy in a New Keynesian model with financial distress  |
| Authors: | | Gerke, Rafael Hammermann, Felix Lewis, Vivien |
| Issue Date: | | 2009 |
| Series/Report no.: | | Discussion Paper Series 1: Economic Studies 2009,23 |
| Abstract: | | This paper investigates the optimal monetary policy response to a shock to collateral when policymakers act under discretion and face model uncertainty. The analysis is based on a New Keynesian model where banks supply loans to transaction constrained consumers. Our results confirm the literature on model uncertainty with respect to a cost-push shock. Insuring against model misspecification leads to a more aggressive policy response. The same is true for a shock to collateral. A preference for robustness leads to a more aggressive policy. Increasing the weight attached to interest rate smoothing raises the degree of aggressiveness. Our results indicate that a preference for robustness crucially depends on the way different types of disturbances affect the economy: in the case of a shock to collateral the policymaker does not need to be as much worried about model misspecification as in the case of a conventional cost-push shock. |
| Subjects: | | Optimal monetary policy discretion model uncertainty banking collateral |
| JEL: | | E44 E58 E32 |
| ISBN: | | 978-3-86558-550-9 |
| Appears in Collections: | | Discussion Paper Series 1: Economic Studies, Bundesbank
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