Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212244 
Year of Publication: 
2013
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 4/2013
Publisher: 
Bank of Finland, Helsinki
Abstract: 
Motivated by the U.S. events of the 2000s, we address whether a too low for too long interest rate policy may generate a boom-bust cycle. We simulate anticipated and unanticipated monetary policies in state-of-the-art DSGE models and in a model with bond financing via a shadow banking system, in which the bond spread is calibrated for normal and optimistic times. Our results suggest that the U.S. boom-bust was caused by the combination of (i) interest rates that were too low for too long, (ii) excessive optimism and (iii) a failure of agents to anticipate the extent of the abnormally favourable conditions.
Subjects: 
DSGE model
shadow banking system
too low for too long
boom-bust
JEL: 
E32
E44
E52
G24
Persistent Identifier of the first edition: 
ISBN: 
978-952-6699-04-2
Document Type: 
Working Paper

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