Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/174321
Authors: 
Kirchner, Philipp
Schwanebeck, Benjamin
Year of Publication: 
2017
Series/Report no.: 
MAGKS Joint Discussion Paper Series in Economics No. 25-2017
Abstract: 
Using a DSGE framework, we discuss the optimal design of monetary policy for an economy where both retail banks and shadow banks serve as financial intermediaries. We get the following results. During crises times, a standard Taylor rule fails to reach sufficient stimulus. Direct asset purchases prove to be the most effective unconventional tool. When maximizing welfare, central banks should shy away from interventions in the funding process between retail and shadow banks. Liquidity facilities are the welfare-maximizing unconventional policy tool. The effectiveness of unconventional measures increases in the size of the shadow banking sector. However, the optimal response to shocks is sensitive to the resource costs of the implementation which may differ across central banks. Hence, optimal unconventional monetary policy is country-specific.
Subjects: 
financial intermediation
shadow banking
financial frictions
unconventional policy
optimal policy
JEL: 
E44
E52
E58
Document Type: 
Working Paper

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