Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/272043 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10399
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We study monetary policy in a New Keynesian model with a variable credit spread and scope for central bank asset purchases to matter. A novel financial and labor market interaction generates an endogenous cost-push channel in the Phillips curve and a credit wedge in the IS curve. The "divine coincidence" holds with the nominal short-term rate and central bank balance sheet available as policy tools. Credit spread-targeting balance sheet policy provides a determinate equilibrium with a fixed policy rate. This policy induces similar welfare losses relative to dual-instrument policy as inflation-targeting interest rate policy with a fixed balance sheet.
Subjects: 
unconventional monetary policy
optimal monetary policy
New Keynesian model
policy rate lower bound
interest rate peg
JEL: 
E43
E52
E58
Document Type: 
Working Paper
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