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Financial disruption and state dependent credit policy

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  • Cargoët, Thibaud
  • Poutineau, Jean-Christophe

Abstract

This paper analyzes unconventional monetary policy decisions related to transitory episodes of financial intermediation disruption. We consider unconventional monetary policy decisions as temporary policies aimed at dampening the consequences of financial and real shocks on the provision of loans. In a DSGE model with financial frictions, we provide a simple approach to the decision to begin and end up unconventional policy measures, by specializing this kind of policies to periods with loan supply shortages. Accounting for an endogenous length of loan supply shortages we find that this policies have two main effects. As previously found in the literature, by raising the value of the lending accelerator in a situation of loan scarcity, they dampen the consequences of shocks. As a second effect (new in the literature), such policy measures increase the length of the loan saturation period making the combination of conventional and unconvential policies an enduring policy solution. These results extend to the Zero Lower Bound situation.

Suggested Citation

  • Cargoët, Thibaud & Poutineau, Jean-Christophe, 2018. "Financial disruption and state dependent credit policy," Economic Modelling, Elsevier, vol. 68(C), pages 249-272.
    • Handle: RePEc:eee:ecmode:v:68:y:2018:i:c:p:249-272
    DOI: 10.1016/j.econmod.2017.07.018
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • 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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