scholarly journals Conventional and Unconventional Monetary Policy with Endogenous Collateral Constraints

2015 ◽  
Vol 7 (1) ◽  
pp. 1-43 ◽  
Author(s):  
Aloísio Araújo ◽  
Susan Schommer ◽  
Michael Woodford
Keyword(s):  
Central Bank ◽  
Financial Constraints ◽  
Aggregate Demand ◽  
Pareto Improvement ◽  
Interest Rate Policy ◽  
Collateral Constraints ◽  
Additional Dimension ◽  
Rate Policy ◽  
Asset Purchases ◽  
The One

We consider the effects of central bank purchases of a risky asset as an additional dimension of policy alongside “conventional” interest rate policy in a general-equilibrium model of asset pricing with endogenous collateral constraints. The effects of asset purchases depend on the way that they affect collateral constraints. We show that under some circumstances, central bank purchases relax financial constraints, increase aggregate demand, and may even achieve a Pareto improvement; but in other cases, they tighten financial constraints, reduce aggregate demand, and lower welfare. The latter case is almost certainly the one that arises if central bank purchases are sufficiently large. (JEL D51, E43, E44, E52, E58)

Modeling of the interest rate policy of the central bank of Russia

2017 ◽  
Author(s):  
A. G. Shelomentsev ◽  
D. B. Berg ◽  
A. A. Detkov ◽  
A. P. Rylova
Keyword(s):  
Interest Rate ◽  
Central Bank ◽  
Interest Rate Policy ◽  
Rate Policy ◽  
The Interest Rate

scholarly journals Liquidity Trap and Excessive Leverage

2016 ◽  
Vol 106 (3) ◽  
pp. 699-738 ◽  
Author(s):  
Anton Korinek ◽  
Alp Simsek
Keyword(s):  
Interest Rate ◽  
Aggregate Demand ◽  
Liquidity Trap ◽  
Interest Rate Policy ◽  
Macroprudential Policies ◽  
Ex Ante ◽  
Rate Policy ◽  
The Interest Rate ◽  
Insurance Decisions

We investigate the role of macroprudential policies in mitigating liquidity traps. When constrained households engage in deleveraging, the interest rate needs to fall to induce unconstrained households to pick up the decline in aggregate demand. If the fall in the interest rate is limited by the zero lower bound, aggregate demand is insufficient and the economy enters a liquidity trap. In this environment, households' ex ante leverage and insurance decisions are associated with aggregate demand externalities. Welfare can be improved with macroprudential policies targeted toward reducing leverage. Interest rate policy is inferior to macroprudential policies in dealing with excessive leverage. (JEL D14, E23, E32, E43, E52, E61, E62)

Thinking afresh about central bank’s interest rate policy

2015 ◽  
Vol 7 (3) ◽  
pp. 221-232
Author(s):  
Gurbachan Singh
Keyword(s):  
Interest Rate ◽  
Aggregate Demand ◽  
Macroeconomic Policy ◽  
Policy Implications ◽  
Policy Regime ◽  
Content Type ◽  
Interest Rate Policy ◽  
Tax Subsidy ◽  
Subsidy Scheme ◽  
Rate Policy

Purpose – The purpose of the paper is to improve policy, and also to simplify theory and policy. Design/methodology/approach – Theory is used in a simple and yet powerful way. Stylized facts are used. This paper reconsiders the prevailing macroeconomic policy regime, and proposes an alternative policy regime. Findings – The low interest rate policy of the central bank in a recession is tantamount to imposition of tax on lenders’ interest income and a subsidy for borrowers implying an implicit tax-subsidy scheme. This scheme may be replaced by a different and explicit tax-subsidy scheme. This may also be supplemented by lower consumption taxes in a recession. From the viewpoint of stabilization of aggregate demand, the prevailing policy regime and the proposed policy regime can be equivalent. However, from the viewpoint of general macroeconomic and asset price stability, the proposed policy regime is superior, though it has (additional) cost of administration. Social implications – Macroeconomic and financial instability has large social cost. This paper can be useful in this context, as it has suggestions for improved macroeconomic policy. It also has policy implications for developing countries and highly indebted countries. Originality/value – This paper’s innovation goes well beyond refinements to prevailing theories and policies. Also, it paves the way for further research.

How Much Better Is Commitment Policy Than Discretionary Policy? Evidence From Six Developed Economies

2020 ◽  
Vol 20 (2) ◽  
Author(s):  
C. Patrick Scott
Keyword(s):  
Interest Rate ◽  
Central Bank ◽  
Inflation Targeting ◽  
New Keynesian ◽  
Interest Rate Policy ◽  
Developed Economies ◽  
Output Stability ◽  
High Preference ◽  
Rate Policy ◽  
Policy Simulations

AbstractMuch has been written on how an active central bank produces inflation outcomes above and beyond what commitment policy would produce. This paper contributes to this body of literature by simulating from the state estimates of both commitment and discretionary policy equilibria in a familiar dynamic New–Keynesian framework. Optimal interest rate and inflation rate policies are derived under the two regimes for six developed economies. The model is estimated using Bayesian methods employing a random-walk Metropolis–Hastings algorithm. Optimal inflation and interest rate policies for each of the economies are simulated. Results suggest that the simulated inflation induced by discretionary policy is not significantly different from commitment policy after 2000 for five of the six countries (including the U.S). Simulated commitment interest rate policy is on average 1.9% higher at the center of the distribution, suggesting that discretionary interest rate policy is on average more often loose compared to commitment interest rate policy. Simulations of the average inflation deviation and welfare loss of discretion policy indicate are greatest when the central bank exhibits low preference for inflation targeting and high preference for output stability.

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