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) 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.
Language:
English
Type (Professor's evaluation):
Scientific
No. of pages:
45