Optimal Unconventional Monetary Policy in the Face of Shadow Banking
Using a DSGE framework, we discuss the optimal design of monetary policy for an economy where both retail banks and shadow banks serve as financial intermediaries. We get the following results. During crises times, a standard Taylor rule fails to reach sufficient stimulus. Direct asset purchases...
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| Published in: | MAGKS - Joint Discussion Paper Series in Economics (Band 25-2017) |
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| Main Authors: | , |
| Format: | Article |
| Language: | English |
| Published: |
2017
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| Subjects: | |
| Online Access: | PDF Full Text |
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| Summary: | Using a DSGE framework, we discuss the optimal design of monetary policy
for an economy where both retail banks and shadow banks serve as financial
intermediaries. We get the following results. During crises times, a standard
Taylor rule fails to reach sufficient stimulus. Direct asset purchases prove to
be the most e¤ective unconventional tool. When maximizing welfare, central
banks should shy away from interventions in the funding process between retail and shadow banks. Liquidity facilities are the welfare-maximizing unconventional policy tool. The effectiveness of unconventional measures increases in the size of the shadow banking sector. However, the optimal response to shocks is sensitive to the resource costs of the implementation which may di¤er across central banks. Hence, optimal unconventional monetary policy is country-specific. |
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| Physical Description: | 48 Pages |
| ISSN: | 1867-3678 |
| DOI: | 10.17192/es2024.0546 |