Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/97743
Authors: 
Verona, Fabio
Martins, Manuel M. F.
Drumond, Inês
Year of Publication: 
2012
Series/Report no.: 
IMFS Working Paper Series 56
Abstract: 
Motivated by the U.S. events of the 2000s, we address whether a too low for too long interest rate policy may generate a boom-bust cycle. We simulate anticipated and unanticipated monetary policies in state-of-the-art DSGE models and in a model with bond financing via a shadow banking system, in which the bond spread is calibrated for normal and optimistic times. Our results suggest that the U.S. boom-bust was caused by the combination of (i) too low for too long interest rates, (ii) excessive optimism and (iii) a failure of agents to anticipate the extent of the abnormally favorable conditions.
Subjects: 
DSGE model
shadow banking system
too low for too long
boom-bust
JEL: 
E32
E44
E52
G24
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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