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What Is in a Name? Purchases and Sales of Financial Assets as a Monetary Policy Instrument

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  • RONALD MAU

Abstract

This paper studies optimal interest rate and balance sheet policy in a quantitative New Keynesian model with a constrained financial sector, considering commitment versus discretion in monetary policy design and fixing either instrument. Optimal interest rate policy under commitment (discretion) achieves 93.0% (82.6%) of the potential gains to dual instrument monetary policy under commitment. Optimal discretionary dual instrument policy eliminates the cost of commitment limitations and exhibits no inflationary bias. Under commitment, the optimal balance sheet policy eliminates the cost of suboptimal interest rate policy, for example, an interest rate peg. Finally, I compare optimal policies to implementable rules‐based policies.

Suggested Citation

  • Ronald Mau, 2023. "What Is in a Name? Purchases and Sales of Financial Assets as a Monetary Policy Instrument," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(6), pages 1507-1533, September.
    • Handle: RePEc:wly:jmoncb:v:55:y:2023:i:6:p:1507-1533
    DOI: 10.1111/jmcb.12993
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    References listed on IDEAS

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    Cited by:

    1. Isabel Gödl-Hanisch & Ronald Mau & Jonathan Rawls, 2023. "Monetary Policy Interactions: The Policy Rate, Asset Purchases, and Optimal Policy with an Interest Rate Peg," CESifo Working Paper Series 10399, CESifo.
    2. Maciej Ryczkowski, 2026. "Zygmunt Narski, Milton Friedman, and modern monetary policy," International Economics and Economic Policy, Springer, vol. 23(1), pages 1-25, February.
    3. Anton Cheremukhin & Sewon Hur & Ron Mau & Karel Mertens & Alexander W. Richter & Xiaoqing Zhou, 2024. "The Postpandemic U.S. Immigration Surge: New Facts and Inflationary Implications," Working Papers 2407, Federal Reserve Bank of Dallas, revised 30 Sep 2025.
    4. Gödl-Hanisch, Isabel & Mau, Ronald & Rawls, Jonathan, 2025. "Monetary policy interactions: The policy rate, asset purchases, and optimal policy with an interest rate peg," European Economic Review, Elsevier, vol. 174(C).

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