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The central-bank balance sheet as an instrument of monetarypolicy

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  • Cúrdia, Vasco
  • Woodford, Michael

Abstract

We extend a standard New Keynesian model to allow an analysis of "unconventional" dimensions of policy alongside traditional interest-rate policy. We find that quantitative easing in the strict sense is likely to be ineffective, but that targeted asset purchases by a central bank can instead be effective when financial markets are sufficiently disrupted, and we discuss the conditions under which such interventions increase welfare. We also discuss optimal policy with regard to the payment of interest on reserves.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 58 (2011)
Issue (Month): 1 (January)
Pages: 54-79

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Handle: RePEc:eee:moneco:v:58:y:2011:i:1:p:54-79
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

Keywords: Credit policy Quantitative easing Zero lower bound Interest on reserves;

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Find related papers by JEL classification:
  • 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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  1. Rajnish Mehra & Facundo Piguillem & Edward C. Prescott, 2011. "Costly financial intermediation in neoclassical growth theory," Working Papers 685, Federal Reserve Bank of Minneapolis.
  2. Shigenori Shiratsuka, 2010. "Size and composition of the central bank balance sheet: revisiting Japan's experience of the quantitative easing policy," Globalization and Monetary Policy Institute Working Paper 42, Federal Reserve Bank of Dallas.
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  17. Gauti B. Eggertsson & Michael Woodford, 2003. "The Zero Bound on Interest Rates and Optimal Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 139-235.
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  21. Vasco Curdia & Michael Woodford, 2010. "Conventional and Unconventional Monetary Policy," Discussion Papers 0910-17, Columbia University, Department of Economics.
  22. Nobuhiro Kiyotaki & Gauti Eggertsson & Andrea Ferrero & Marco Del Negro, 2010. "The Great Escape? A Quantitative Evaluation of the Fed’s Non-Standard Policies," 2010 Meeting Papers 113, Society for Economic Dynamics.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Blogs review: Wallace Neutrality and Balance Sheet Monetary Policy
    by ? in Bruegel blog on 2012-09-10 12:37:48
  2. Quantitativate Esta... 2
    by Generico in Economista Serial Crónico on 2010-11-09 19:55:00
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