Working Paper Series : Institute for Monetary and Financial Stability
2 search hits
- 56
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(Un)anticipated monetary policy in a DSGE model with a shadow banking system
(2012)
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Fabio Verona
Manuel M. F. Martins
Inês Drumond
- 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.
- 55
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Lumpy investment in sticky information general equilibrium
(2012)
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Fabio Verona
- In this paper, I introduce lumpy micro-level capital adjustment into a sticky information general equilibrium model. Lumpy adjustment arises because of inattentiveness in capital investment decisions instead of the more common assumption of non-convex adjustment costs. The model features inattentiveness as the only source of stickiness. I find that the model with lumpy investment yields business cycle dynamics which differ substantially from those of an otherwise identical model with frictionless investment and are much more consistent with the empirical evidence. These results therefore strengthen the case in favour of the relevance of microeconomic investment lumpiness
for the business cycle.
