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Hoermann, Markus
Schabert, Andreas
Year of Publication: 
Series/Report no.: 
Tinbergen Institute Discussion Paper 11-001/2/DSF 6
We present a simple macroeconomic model with open market operations that allows examining the effects of quantitative and credit easing. The central bank controls the policy rate, i.e. the price of money in open market operations, as well as the amount and the type of assets that are accepted as collateral for money. When the policy rate is sufficiently low, this set-up gives rise to an (il-)liquidity premium on non-eligible assets. Then, a quantitative easing policy, which increases the size of the central bank's balance sheet, can increase real activity and prices, while a credit easing policy, which changes the composition of the balance sheet, can lower interest rate spreads, stimulate real activity, and reduce prices. The effectiveness of quantitative and credit easing is however limited to the extent that eligible assets are scarce. Nevertheless, they can help escaping from the zero lower bound.
Monetary policy
collateralized lending
quantitative easing
credit easing
liquidity premium
zero lower bound
Document Type: 
Working Paper

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