Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/208217
Authors: 
De Fiore, Fiorella
Tristani, Oreste
Year of Publication: 
2018
Series/Report no.: 
ECB Working Paper 2183
Abstract: 
We study the optimal combination of conventional (interest rates) and unconventional (credit easing) monetary policy in a model where agency costs generate a spread between deposit and lending rates. We show that unconventional measures can be a powerful substitute for interest rate policy in the face of certain financial shocks. Such measures help shield the real economy from the deterioration in financial conditions and warrant smaller reductions in interest rates. They therefore lower the likelihood of hitting the lower bound constraint. The alternative option to cut interest rates more deeply and avoid deploying unconventional measures is sub-optimal, as it would induce unnecessarily large changes in savers ' intertemporal consumption patterns.
Subjects: 
optimal monetary policy
unconventional policies
zero-lower bound
asymmetric information
JEL: 
E44
E52
E61
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-3288-2
Document Type: 
Working Paper

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