(Un)anticipated monetary policy in a DSGE model with a shadow banking system
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.
| Author: | Fabio Verona, Manuel M. F. Martins, Inês Drumond |
|---|---|
| URN: | urn:nbn:de:hebis:30:3-268698 |
| Series (Serial Number) | Working Paper Series : Institute for Monetary and Financial Stability (56) |
| Document Type: | Working Paper |
| Language: | English |
| Year of first Publication: | 2012 |
| Publishing Institution: | Univ.-Bibliothek Frankfurt am Main |
| Tag: | DSGE model; boom-bust; shadow banking system; too low for too long |
| Institutes: | Institute for Monetary and Financial Stability |
| Dewey Decimal Classification: | 330 Wirtschaft |
| JEL-Classification: | E32 Business Fluctuations; Cycles |
| E44 Financial Markets and the Macroeconomy | |
| E52 Monetary Policy | |
| G24 Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies (Updated!) | |
| Sammlungen: | Universitätspublikationen |
| Licence (German): |  Veröffentlichungsvertrag für Publikationen ohne Print on Demand |
