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Misallocation Costs of Digging Deeper into the Central Bank Toolkit

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  • David Zeke

    (University of Southern California)

  • Robert Kurtzman

    (Federal Reserve Board of Governors)

Abstract

This paper examines the potential misallocation of resources induced by Central Bank large-scale asset purchases, particularly the purchase of corporate bonds of nonfinancial firms, through their heterogeneous effect on firms' cost of capital. First, we analytically demonstrate the mechanism in a static model with heterogeneous agents. We then evaluate the misallocation of resources induced by corporate bond buys and the associated output losses in a calibrated DSGE model of which Gertler Karadi (2013) is a special case.

Suggested Citation

  • David Zeke & Robert Kurtzman, 2017. "Misallocation Costs of Digging Deeper into the Central Bank Toolkit," 2017 Meeting Papers 1347, Society for Economic Dynamics.
    • Handle: RePEc:red:sed017:1347
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    Cited by:

    1. Joel M. David & David Zeke, 2021. "Risk-Taking, Capital Allocation and Optimal Monetary Policy," Working Paper Series WP-2021-01, Federal Reserve Bank of Chicago.
    2. Dawood Ashraf & Mohsin Khawaja & M. Ishaq Bhatti, 2022. "Raising capital amid economic policy uncertainty: an empirical investigation," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-32, December.
    3. D’Amico, Stefania & Kaminska, Iryna, 2019. "Credit easing versus quantitative easing: evidence from corporate and government bond purchase programs," Bank of England working papers 825, Bank of England.
    4. Andrea L. Eisfeldt & Yu Shi, 2018. "Capital Reallocation," NBER Working Papers 25085, National Bureau of Economic Research, Inc.
    5. Konrad Kuhmann, 2023. "Firm Heterogeneity and the Transmission of Central Bank Credit Policy," Berlin School of Economics Discussion Papers 0012, Berlin School of Economics.
    6. Dekle, Robert & Tsang, Andrew, 2023. "Monetary policy shocks and resource misallocations in the Periphery: Evidence from Chinese provincial bond yields," Journal of International Money and Finance, Elsevier, vol. 137(C).
    7. Bofinger, Peter & Schnabel, Isabel & Feld, Lars P. & Schmidt, Christoph M. & Wieland, Volker, 2017. "Für eine zukunftsorientierte Wirtschaftspolitik. Jahresgutachten 2017/18 [Towards a Forward-Looking Economic Policy. Annual Report 2017/18]," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201718.
    8. Morlacco, Monica & Zeke, David, 2021. "Monetary policy, customer capital, and market power," Journal of Monetary Economics, Elsevier, vol. 121(C), pages 116-134.

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    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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