Refine
Year of publication
- 2012 (1)
Document Type
- Working Paper (1)
Language
- English (1)
Has Fulltext
- yes (1)
Is part of the Bibliography
- no (1)
Keywords
- DSGE model (1)
- boom-bust (1)
- shadow banking system (1)
- too low for too long (1)
Institute
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.
