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Large Scale Asset Purchases with Segmented Mortgage and Corporate Loan Markets

Author

Listed:
  • Meixing Dai

    () (BETA, University of Strasbourg)

  • Frédéric Dufourt

    () (Aix-Marseille University (Aix-Marseille School of Economics), CNRS-GREQAM & EHESS)

  • Qiao Zhang

    () (BETA, University of Strasbourg)

Abstract

We introduce Large Scale Asset Purchases (LSAPs) in a New-Keynesian DSGE model that features distinct mortgage and corporate loan markets. We show that following a significant disruption of financial intermediation, central-bank purchases of mortgage-backed securities (MBS) are uniformly less effective at easing credit market conditions and stabilizing economic activity than outright purchases of corporate bonds. Moreover, the size of the effects crucially depends on the extent to which credit markets are segmented, i.e. to which a "portfolio balance channel" is at work in the economy. More segmented credit markets imply larger, but more local effects of particular asset purchases. With strongly segmented credit markets, large scale purchases of MBS are useful to stabilize the housing market but do little to mitigate the contractionary effect of the crisis on employment and output.

Suggested Citation

  • Meixing Dai & Frédéric Dufourt & Qiao Zhang, 2013. "Large Scale Asset Purchases with Segmented Mortgage and Corporate Loan Markets," AMSE Working Papers 1336, Aix-Marseille School of Economics, Marseille, France, revised Jun 2013.
  • Handle: RePEc:aim:wpaimx:1336
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    References listed on IDEAS

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    Cited by:

    1. Valentin Jouvanceau, 2016. "The Portfolio Rebalancing Channel of Quantitative Easing," Working Papers halshs-01349870, HAL.
    2. Walentin, Karl, 2014. "Business cycle implications of mortgage spreads," Journal of Monetary Economics, Elsevier, vol. 67(C), pages 62-77.
    3. Valentin Jouvanceau, 2016. "The Portfolio Rebalancing Channel of Quantitative Easing," Working Papers 1625, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.

    More about this item

    Keywords

    Financial frictions; mortgage-backed securities (MBS); corporate bonds; unconventional monetary policy; large scale asset purchases (LSAPs); portfolio balance channel; credit spreads.;

    JEL classification:

    • 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
    • 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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