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Unconventional Policy and Idiosyncratic Risk

Author

Listed:
  • Salvatore Nisticò

    (Department of Social Sciences and Economics, Sapienza University of Rome)

  • Marialaura Seccareccia

    (Department of Economics and Finance, LUISS Guido Carli)

Abstract

Idiosyncratic risk and cyclical inequality imply additional channels that amplify the transmission of persistent balance-sheet policies, through their effects on private sector's expectations and consumption risk. Through these channels, unconventional monetary policy improves the central bank's ability to anchor expectations and rule out endogenous instability, whether or not the economy is in a liquidity trap. They also allow the central bank to optimally complement interest-rate policy in particular in response to financial shocks that expose the economy to the effective-lower-bound on the policy rate, and can promote a swifter exit from the liquidity trap.

Suggested Citation

  • Salvatore Nisticò & Marialaura Seccareccia, 2022. "Unconventional Policy and Idiosyncratic Risk," Working Papers 7/22, Sapienza University of Rome, DISS.
    • Handle: RePEc:saq:wpaper:7/22
    as

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    File URL: http://www.diss.uniroma1.it/sites/default/files/allegati/DiSSE_Nistico_Seccareccia_wp7_2022.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Cyclical inequality; idiosyncratic risk; optimal monetary policy; HANK; THANK; ELB.;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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