Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/69606
Authors: 
Dinger, Valeriya
Steinkamp, Sven
Westermann, Frank
Year of Publication: 
2012
Series/Report no.: 
CESifo Working Paper: Monetary Policy and International Finance 4036
Abstract: 
Central bank credit has expanded dramatically in some of the euro area member countries since the beginning of the financial crisis. This paper makes two contributions to understand this stylized fact. First, we discuss a simple model of monetary policy that includes (i) a credit channel and (ii) a common pool problem in a monetary union. We illustrate that the interaction of the two elements leads to an inflation bias that is independent of the standard time-inconsistency bias. Secondly, we present empirical evidence that is consistent with the view of fragmented monetary policy and changing policy objectives among the national cen-tral banks in the euro area. We show that after 2007, central bank credit has been highly correlated with unemployment, but not with inflation in the respective countries.
Subjects: 
tragedy of the commons
inflation bias
credit channel
TARGET2
euro area
JEL: 
E52
E58
H41
Document Type: 
Working Paper

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