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Optimal quantitative easing in a monetary union

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  • Kabaca, Serdar
  • Maas, Renske
  • Mavromatis, Kostas
  • Priftis, Romanos

Abstract

This paper explores the optimal allocation of government bond purchases within a monetary union, using a two-region DSGE model, where regions are asymmetric with respect to portfolio characteristics: the extent of substitutability between assets of different maturity and origin, asset home bias, and levels of government debt. An optimal QE policy under commitment does not only reflect different region sizes, but is also a function of these portfolio characteristics. By calibrating the model to the euro area, we show that optimal QE favors purchases from the smaller region (Periphery instead of Core), given that the former faces stronger portfolio frictions.

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  • Kabaca, Serdar & Maas, Renske & Mavromatis, Kostas & Priftis, Romanos, 2023. "Optimal quantitative easing in a monetary union," European Economic Review, Elsevier, vol. 152(C).
    • Handle: RePEc:eee:eecrev:v:152:y:2023:i:c:s0014292122002227
    DOI: 10.1016/j.euroecorev.2022.104342
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    1. Optimal quantitative easing in a monetary union
      by Christian Zimmermann in NEP-DGE blog on 2020-12-11 15:39:06

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    More about this item

    Keywords

    Optimal monetary policy; Quantitative easing; Monetary union; DSGE model; Portfolio rebalancing; Zero lower bound;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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