(Un)anticipated Monetary policy in a DSGE model with a shadow banking system (Bank of Finland Research Discussion Paper 4/2013)

• Type: Technical Report
• Date: 2013

Authors

Fabio Verona (Author) Other; Manuel Mota Freitas Martins (Author) FEP; Inês Drumond (Author) FEP

Scientific classification

FOS: Social sciences > Economics and Business

CORDIS: Social sciences > Economics

Other information

Abstract (EN): 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) interest rates that were too low for too long, (ii) excessive optimism and (iii) a failure of agents to anticipate the extent of the abnormally favourable conditions.

Language: English

Type (Professor's evaluation): Scientific

Notes: Bank of Finland Research Discussion Paper 4/2013

Reference: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/BoF_DP_1304.pdf

No. of pages: 40