Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154171
Authors: 
Schabert, Andreas
Year of Publication: 
2014
Series/Report no.: 
ECB Working Paper 1738
Abstract: 
This paper examines how credit market frictions affect optimal monetary policy and if there is a role for central bank asset purchases. We develop a sticky price model where money serves as the means of payment and ex-ante identical agents borrow/lend among each other. The credit market is distorted as borrowing is constrained by available collateral. We show that the central bank cannot implement the first best allocation and that optimal monetary policy mainly aims at stabilizing prices when only a single instrument is available. The central bank can however mitigate the credit market distortion in a welfare-enhancing way by purchasing loans at a favorable price, which relies on rationing the supply of money.
Subjects: 
borrowing constraints
central bank asset purchases
money rationing
nominal rigidities
optimal monetary policy
JEL: 
E4
E5
E32
ISBN: 
978-92-899-1146-7
Document Type: 
Working Paper

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