Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/168590
Authors: 
Quint, Dominic
Rabanal, Pau
Year of Publication: 
2017
Series/Report no.: 
Discussion Paper, Deutsche Bundesbank 28/2017
Abstract: 
The large recession that followed the Global Financial Crisis of 2008-09 triggered unprecedented monetary policy easing around the world. Most central banks in advanced economies deployed new instruments to affect credit conditions and to provide liquidity on a large scale after short-term policy rates had reached their effective lower bound. In this paper, we study if this new set of tools, commonly labeled as unconventional monetary policies (UMP), should continue to be used once economic conditions and interest rates have normalized. In particular, we study the optimality of asset purchase programs by using an estimated non-linear DSGE model with a banking sector and long-term private and public debt for the United States. We find that the benefits of using such UMP in normal times are substantial, equivalent to 1.45 percent of consumption. However, the benefits of using UMP are shock-dependent and mostly arise when the economy is hit by financial shocks. By contrast, when more traditional business cycle shocks (such as supply and demand shocks) hit the economy, the benefits of using UMP are negligible or zero.
Subjects: 
Unconventional Monetary Policy
Banking
Optimal Rules
JEL: 
C32
E32
E52
ISBN: 
978-3-95729-395-4
Document Type: 
Working Paper

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