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Quantitative Easing under Incomplete Markets: Optimality Conditions for Stationary Policy

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  • Matthew Hoelle

Abstract

In a stochastic economy, the rebalancing of short and long term government debt positions can have real e ects when markets are incomplete. Monetary policy aims to harnass these real e ects to maximize social welfare. The policy rules can either be stationary, in which the current policy choice vector only depends on the current shock realization, or nonstationary, in which the policy choice vector is recursively updated. This paper characterizes the conditions under which a stationary policy rule is optimal.

Suggested Citation

  • Matthew Hoelle, 2014. "Quantitative Easing under Incomplete Markets: Optimality Conditions for Stationary Policy," Purdue University Economics Working Papers 1277, Purdue University, Department of Economics.
    • Handle: RePEc:pur:prukra:1277
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    File URL: https://business.purdue.edu/research/working-papers-series/2014/1277.pdf
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    References listed on IDEAS

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    Cited by:

    1. Hoelle Matthew, 2018. "Optimal Term Structure in a Monetary Economy with Incomplete Markets," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 18(1), pages 1-26, January.
    2. Hoelle, Matthew, 2015. "On the Pareto efficiency of term structure targeting policies," Mathematical Social Sciences, Elsevier, vol. 77(C), pages 62-69.

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    More about this item

    Keywords

    monetary policy rules; asset span; term structure of interest rates; Markov equilibrium;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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

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