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Unconventional government debt purchases as a supplement to conventional monetary policy

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  • Martin Ellison

Abstract

In response to the Great Financial Crisis, the Federal Reserve, the Bank of England and many other central banks have adopted unconventional monetary policy instruments.� We investigate if one of these, purchases of long-term government debt, could be a valuable addition to conventional short-term interest rate policy even if the main policy rate is not constrained by the zero lower bound.� To do so, we add a stylised financial sector and central bank asset purchases to an otherwise standard New Keynesian DSGE model.� Asset quantities matter for interest rates through a preferred habitat channel.� If conventional and unconventional monetary policy instruments are coordinated appropriately then the central bank is better able to stabilise both output and inflation.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 679.

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Date of creation: 16 Oct 2013
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Handle: RePEc:oxf:wpaper:679

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Keywords: Quantitative Easing; Large-Scale Asset Purchases; Preferred Habitat; Optimal Monetary Policy;

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Cited by:
  1. Thorsten Beck & Andrea Colciago & Damjan Pfajfar, 2014. "The role of financial intermediaries in monetary policy transmission," DNB Working Papers 420, Netherlands Central Bank, Research Department.

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