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Unconventional government debt purchases as a supplement to conventional monetary policy

  • Martin Ellison

In response to the Great Financial Crisis, the Federal Reserve, the Bank of England and many other central banks have adopted unconventional monetary policy instruments.� We investigate if one of these, purchases of long-term government debt, could be a valuable addition to conventional short-term interest rate policy even if the main policy rate is not constrained by the zero lower bound.� To do so, we add a stylised financial sector and central bank asset purchases to an otherwise standard New Keynesian DSGE model.� Asset quantities matter for interest rates through a preferred habitat channel.� If conventional and unconventional monetary policy instruments are coordinated appropriately then the central bank is better able to stabilise both output and inflation.

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File URL: http://www.economics.ox.ac.uk/materials/papers/13054/paper679.pdf
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 679.

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Date of creation: 16 Oct 2013
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Handle: RePEc:oxf:wpaper:679
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