Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/110823
Authors: 
Melina, Giovanni
Villa, Stefania
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper 5317
Abstract: 
Using an estimated dynamic stochastic general equilibrium model with banking, this paper first provides evidence that monetary policy reacted to bank loan growth in the US during the Great Moderation. It then shows that the optimized simple interest-rate rule features virtually no response to the growth of bank credit. However, the welfare loss associated to the empirical responsiveness is small. The sources of business cycle fluctuations are crucial in determining whether a “leaning-against-the-wind” policy is optimal or not. In fact, the predominant role of supply shocks in the model gives rise to a trade-off between inflation and financial stabilization.
Subjects: 
lending relationships
augmented Taylor rule
Bayesian estimation
optimal policy
JEL: 
E32
E44
E52
Document Type: 
Working Paper

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