Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/96374
Authors: 
Dinger, Valeriya
Steinkamp, Sven
Westermann, Frank
Year of Publication: 
2012
Series/Report no.: 
Working Paper, Institute of Empirical Economic Research, University of Osnabrück 94
Abstract: 
Central bank credit has expanded dramatically since the beginning of 2007 in some of the euro area member countries. 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 that national central banks in the euro area have indeed followed an independent monetary policy. We find that inflation was the main determinant of central bank credit prior to 2007. After 2007, it closely follows unemployment 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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